With the fluctuating mortgage rates in the Canadian market, it can be challenging to find the most competitive deals. This is where 2-year fixed mortgage rates become important. In this guide, we will explain everything you need to know about 2-year fixed mortgages and offer tips on securing the best rates in Canada.
What is a 2-year Fixed Mortgage Rate?
A 2-year fixed mortgage rate is a set interest rate that will remain the same for 2 years. Your regular mortgage payments are fixed for the entire 2-year term. At the end of the term, the mortgage rate can change when it comes time to renew your mortgage. The 2-year timeframe is known as the mortgage term, while the full lifespan of the mortgage loan is called the amortization period, generally 25-30 years.
2-year fixed mortgages give flexibility to renegotiate your rate after a relatively short period. It also avoids the early repayment penalties that often come with breaking longer-term mortgages.
How Are 2-Year Fixed Mortgage Rates Determined?
2-year fixed mortgage rates follow the 2-year Government of Canada bond yields. When these yields rise or fall, 2-year fixed mortgage rates tend to follow suit. However, lenders add a spread above the 2-year bond yields to cover their financing costs and profit margins. This accounts for risks the lender takes on with a mortgage that doesn’t exist with guaranteed government bond returns.
The size of the lender’s spread is influenced by several factors, including:
- Expected mortgage default rates
- Debt servicing costs
- Market competition and demand for mortgages
- Access to capital and the ability to finance mortgages
If lenders can obtain cheaper financing from investors to fund mortgages, they may be able to offer lower mortgage rates and reduce their spread.
Current 2-Year Fixed Rates in Canada
Rates for 2-year fixed mortgages can vary significantly between lenders. As of February 18, 2025, the best 2-year fixed mortgage rates in Canada range from 3.99% to 7.54%, as shown in the table below:
| Rate | Provider |
|---|---|
| 5.44% | TD Bank |
| 5.53% | BMO |
| 5.59% | Scotiabank |
| 5.79% | MCAP |
| 5.29% | CIBC |
| 5.44% | RBC |
| 5.64% | Tangerine |
| 6.69% | National Bank of Canada |
| 5.44% | First National |
Historical trends of 2-year fixed mortgage rates in Canada
Examining the historical trends of 2-year fixed mortgage rates in Canada can provide valuable insights for homebuyers and homeowners. Over the past decade, 2-year fixed mortgage rates in Canada have experienced fluctuations.
Compared to other mortgage terms, such as 5-year or 10-year fixed rates, 2-year fixed rates are generally lower. Short-term mortgages typically carry less risk for lenders, resulting in more competitive rates.
Predicting future rate trends is challenging, as numerous factors can influence mortgage rates. However, homebuyers and homeowners can better understand potential rate movements by monitoring economic indicators, bond yields, and the Bank of Canada’s monetary policy.
What are the Benefits of 2-Year Fixed Rates?
While 5-year fixed terms remain the most popular, 2-year fixed mortgages are gaining traction with these key benefits:
- Flexibility: Only locked in for 2 years in case rates improve later.
- Avoiding penalties: Breaking a longer-term mortgage can incur fees and penalties.
- Protection from increases: Provides some security if rates rise in the near term.
- Bridging uncertainty: Allows riding out volatile rate environment.
- Expected rate drops: Take advantage if decreases are expected within 2 years.
- Shorter time horizon: Fits a shorter-term home ownership plan.
For risk-averse borrowers or those unsure of future plans, 2-year terms offer a balanced approach.
What are the Disadvantages of 2-year fixed mortgages?
While 2-year fixed mortgages offer several benefits, there are also 3 potential drawbacks to consider:
- Higher rates compared to variable-rate mortgages: Over the 2-year term, you may pay more interest than you would with a variable-rate mortgage, especially if market interest rates remain stable or decrease. This is because lenders charge a premium for the stability and predictability of a fixed rate.
- Frequent renewal requirements: With a 2-year fixed mortgage, you’ll need to renew your mortgage more frequently than longer-term mortgages. This can be time-consuming and may result in higher rates if market conditions have changed unfavourably since your last renewal. Additionally, it may be more challenging to budget long-term.
- Opportunity cost: By locking your interest rate for the term, you may miss out on potential savings if interest rates decrease during your term. In a falling interest rate environment, those with variable-rate mortgages or shorter-term fixed mortgages may have the opportunity to take advantage of lower rates sooner, potentially saving money on interest over the life of their mortgage.
Explore more guides on different mortgage term rates in Canada
- 1-Year Fixed Mortgage Rates
- 3-Year Fixed Mortgage Rates
- 3-Year Variable Mortgage Rates
- 5-Year Fixed Mortgage Rates
- 5-Year Variable Mortgage Rates
- 10-Year Fixed Mortgage Rates
What Happens When a 2-Year Fixed Mortgage Ends?
As your 2-year fixed term comes to an end, you have three main options:
- Renew with your existing lender: Extend your mortgage for a new term and rate. You do not need to requalify if you stay with the same lender.
- Refinance with a new lender: This is an option if other lenders offer better rates. You’ll have to requalify and may incur fees.
- Pay off your mortgage: If you have the funds, make one final payment to close the mortgage. Selling the home can provide the equity to do this.
Start comparing new rates 60-90 days before your term expires. Apply early to allow processing time for approval and documents.
Tips for Finding the Best 2-Year Fixed Mortgage Rate
Follow these guidelines to secure the most competitive 2-year fixed rate possible:
- Boost your credit score and secure the largest down payment possible. This allows you to qualify for top rates.
- Consider alternative lenders beyond the major banks to access better pricing.
- Get pre-approved early so you can lock in current rates before any increases.
- Work with a broker to instantly compare rates from many lenders at once.
- Refinance multiple properties or transfer a higher loan amount to earn rate discounts from lenders.
- Negotiate additional rate reductions, cashback offers, or other perks with your chosen lender.
With fluctuating mortgage rates, finding competitive 2-year fixed rates requires some savvy comparison shopping. While major bank-posted rates are readily available, brokers access better pricing from alternative lenders you won’t see advertised publicly. Follow the tips outlined in this guide to get the inside track on the top 2-year fixed mortgage rates for your unique financial situation. The right rate can save you thousands over your mortgage term.
FAQs
What is the difference between a 2-year fixed mortgage rate and a variable rate mortgage in Canada?
A 2-year fixed mortgage rate remains constant for two years, providing predictable monthly payments. In contrast, a variable-rate mortgage fluctuates based on market conditions, resulting in potential changes to monthly payments.
How often do 2-year fixed mortgage rates change in Canada?
2-year fixed mortgage rates can change daily, depending on various factors such as economic conditions, bond yields, and lender competition. However, once you lock in a 2-year fixed rate, it remains constant for your term.
Are 2-year fixed mortgage rates in Canada higher than longer-term fixed rates?
Yes, 2-year fixed mortgage rates are typically higher than longer-term fixed rates, such as 5-year or 10-year terms. Lenders charge a premium for the flexibility and shorter commitment associated with a 2-year term.
Can I break my 2-year fixed mortgage without penalties?
Unfortunately, no. You will face early repayment charges if you break your 2-year term before maturity. Penalties vary by lender but often equal a few months' interest.
Can I switch lenders at the end of my 2-year fixed mortgage term in Canada?
es. This is an opportunity to compare rates and mortgage products from different lenders to find the best option for your next term. Keep in mind that switching lenders may involve additional costs, such as appraisal fees or legal fees.
