This guide on 1-year fixed mortgage rates in Canada will examine current rates, pros and cons, and historical context and provide expert advice on finding the right 1-year mortgage to match your financial situation and goals. Whether you’re looking to purchase a new home or considering refinancing, understanding how 1-year fixed rates work and comparing multiple options is key to maximizing savings and flexibility.
Current 1-Year Fixed Rates in Canada
Here are the latest 1-year fixed mortgage rates from major Canadian lenders:
| Lender | 1-Year Fixed Rate |
|---|---|
| RBC Royal Bank | 5.84% |
| Scotiabank | 7.29% |
| CIBC | 5.99% |
| TD Canada Trust | 6.20% |
| BMO | 5.98% |
| National Bank | 6.99% |
| MCAP | 6.49% |
| Tangerine | 6.54% |
| First National | 6.20% |
As of February 2025, 1-year fixed mortgage rates from major lenders range between 5.84% and 7.29%. Rates are subject to change.
What Are 1-Year Fixed Mortgage Rates?
A 1-year fixed mortgage rate means the interest rate stays the same for 1 year. After the term expires, the mortgage must be renewed at the current rate. The interest rate and regular monthly mortgage payment will not change for 12 months. This allows borrowers to lock in a low rate for the short term and avoid unpredictable fluctuations.
This mortgage needs to be renewed annually. The renewal rate may be higher or lower, depending on market conditions. This frequent renewal makes 1-year terms more flexible than longer fixed terms, allowing borrowers to take advantage of decreases in interest rates.
Are 1-Year Fixed Rates Popular in Canada?
In Canada, 1-year fixed mortgages are among the less popular mortgage terms compared to longer 2-year fixed, 3-year fixed, 4-year fixed, and 5-year fixed mortgages. 1-year fixed rate mortgages accounted for just 10% of all outstanding mortgages.
The lower popularity of 1-year fixed mortgages is likely due to their higher renewal frequency than longer terms. However, they remain an option for certain borrowers who value short-term flexibility and expect to refinance within a year. Their flexibility and often lower rates keep them relevant in Canada’s mortgage landscape.
Historical Rates for 1-Year Fixed Mortgages in Canada
Reviewing the historical rates for 1-year fixed mortgages provides helpful context [Source].
| Year | Peak 1-Year Fixed Rate | Lowest 1-Year Fixed Rate |
|---|---|---|
| 2018 | 2.99% | 2.69% |
| 2019 | 3.19% | 2.49% |
| 2020 | 2.79% | 1.64% |
| 2021 | 2.09% | 1.54% |
| 2022 | 5.39% | 1.99% |
| 2023 | 6.64% | 5.68% |
| 2024 | 6.39% | 5.89% |
The spread between high and low 1-year fixed rates demonstrates borrowers’ fluctuation upon annual renewal. Analyzing history provides helpful context for anticipating where current 1-year fixed rates may move at renewal. It also highlights the relatively low rates of the past decade.
Why Consider a 1-Year Fixed Mortgage?
There are 6 reasons why borrowers may choose a 1-year fixed mortgage term:
- Lower rates compared to longer terms – Historically, 1-year fixed rates tend to be lower than 3, 4, or 5-year fixed terms. This can result in significant savings, especially on larger mortgages.
- Flexibility – A 1-year term offers more flexibility to refinance or move to a different lending institution. This allows borrowers to take advantage of better rates quickly.
- Avoid prepayment penalties – There are more opportunities to increase payments or refinance without penalty, providing flexibility for accelerated repayment.
- Take advantage of expected rate drops – If rates are forecasted to drop in the near future, a shorter 1-year term allows borrowers to renew into lower rates faster than longer terms.
- Rebuilding credit – Borrowers with less-than-ideal credit may only qualify for short-term mortgages at first. A 1-year term gives them a chance to rebuild their profile and qualify for lower rates on renewal.
- Short-term homeownership – For those who plan to own their home only for a short time, a 1-year fixed rate reduces long-term interest costs.
What are the Cons of 1-Year Fixed Mortgages?
Along with the advantages, 1-year fixed mortgages also come with 4 disadvantages, highlighting why they make up just 10% of the mortgage market.
- More Frequent Renewals: This involves paperwork, monitoring markets, negotiating rates, and disclosure every 12 months. If the payment changes annually, renewals may disrupt budgeting.
- Interest Rates Could Rise at Renewal: If rates trend upwards, being locked in for only one year gives less protection than 3-year- or 5-year terms.
- Lower Rate Stability: With long-term mortgages, homeowners can enjoy rate and payment stability. The 1-year term means both remain unchanged for just 1 year, requiring borrowers to adapt to unknown rates and payments at each renewal.
- May Incur Renewal Fees: Some lenders charge renewal fees on 1-year mortgages to cover administration costs. These fees can reach up to $500.
1-Year vs. 5-Year Fixed Mortgage Rates
Here is a detailed comparison of key factors between 1-year and 5-year fixed mortgages:
| Feature | 1-Year Fixed | 5-Year Fixed |
|---|---|---|
| Interest Rate | Historically lower than 5-year fixed rates | Higher interest rate but fixed for longer term |
| Regular Payments | Stay constant for 1 year only | Consistency of the same payment for 5 years |
| Rate Renewal | Required every year – fluctuates annually | Prepayment penalties to break the mortgage early |
| Flexibility | Can renegotiate lower rates annually | Locked in for the full term, unable to benefit from rate decreases |
| Prepayment Penalties | No penalties; can pay off or refinance | Prepayment penalties to break mortgage early |
| Closing Costs | May incur renewal fees annually | Costs applicable on renewal after 5 years |
In summary, 1-year terms provide short-term flexibility and lower rates at the expense of uncertainty in annual renewal. 5-year terms offer long-term stability and payment consistency but at potentially higher rates.
Explore more guides on different mortgage term rates in Canada
How Can You Qualify for a 1-Year Fixed Mortgage?
Meeting standard approval criteria is critical for 1-year fixed mortgages since the rates reset annually. Here are 5 important considerations:
- Most lenders require a minimum down payment of 20% for 1-year fixed mortgages. Options for high-ratio mortgages may be limited.
- Because rates renew annually, lenders want to ensure borrowers can handle potential increases each year. This means keeping GDS and TDS ratios lower.
- For future renewals, lenders look for stable employment and income history spanning several years. Self-employed borrowers may need a larger down payment and a longer consistent income history.
- Most lenders require minimum credit scores in the mid-600s for 1-year terms. Scores below 680 may result in higher interest rates.
- Even though 1-year fixed rates are low, lenders qualify applicants based on the posted 5-year fixed rate, as per the mortgage stress test requirement.
How to Choose the Right 1-Year Fixed Mortgage?
When comparing 1-year fixed mortgage lenders, here are key considerations:
- Rates and Discounts – Secure the lowest interest rate possible by comparing banks, credit unions, trust companies and mortgage finance companies. Look at both posted and discounted rates.
- Features – Compare prepayment privileges, portability to another property, annual lump sum privileges, and other features that provide flexibility.
- Repayment Options – Many 1-year mortgages allow for accelerated bi-weekly or weekly payments to save interest costs faster. Look for this capability.
- Renewal Policies – Ask about the lender’s renewal process, administration fees and rate negotiation policies. Seek out long rate hold periods and guarantees.
- Portability – Determine if the mortgage is portable between properties should you move within the term. If so, is there a fee for porting?
- Prepayment – Ask about prepayment privileges and any penalties that apply if breaking the mortgage before maturity.
1-year fixed-rate mortgages remain suitable for homeowners seeking short-term predictability and flexibility. However, the requirement for annual renewal and the risk of higher rates at each reset needs consideration. Shopping multiple 1-year fixed-rate options provides the best opportunity to maximize flexibility and cost savings. Seeking expert advice from a mortgage broker adds assurance to making the best decision for your situation.
FAQs
Can I break my 1-year fixed mortgage early?
Yes, you can typically break your 1-year fixed mortgage before the term ends. However, you may be subject to substantial prepayment penalties. Review your mortgage contract or consult your lender to understand the specific penalties you may face.
Is a 1-year fixed mortgage better than a variable rate?
Choosing between a 1-year fixed mortgage and a variable rate depends on your risk tolerance, financial goals, and market outlook. 1-year fixed rates offer more stability but may be higher than variable rates. Variable rates can provide savings if rates remain low but expose you to the risk of rate increases
Can I make lump sum payments on a 1-year fixed mortgage?
Many 1-year fixed mortgages allow 10% or 20% annual lump sum payments, accelerating your principal repayment.
Do I need to requalify yearly for a 1-year fixed mortgage?
Lenders will confirm your income before each renewal, but full credit checks and stress tests are not required annually.
Should I choose a 1-year or 5-year fixed term?
1-year terms offer lower short-term rates but require annual renewal. 5-year terms have payment stability but lock you in longer with less flexibility.
Can I get a 1-year fixed mortgage with less than 20% down?
High-ratio 1-year fixed mortgages with less than 20% down payment are limited but available from some lenders. Applicants will need strong credit and income.
