One mortgage product that has been gaining traction recently is the 3-year fixed mortgage rate. This type of mortgage offers a unique blend of stability and flexibility, making it an attractive choice for many homebuyers and homeowners alike.
In this guide, we’ll explore what 3-year fixed mortgage rates are, how they work, and why they’re becoming increasingly popular. We’ll also compare 3-year fixed rates to other mortgage terms, examine historical trends, and provide expert strategies for finding the best mortgage rate for your needs.
What is a 3-year fixed mortgage rate?
A 3-year fixed mortgage rate is an interest rate that remains constant for a term of three years. During this period, your monthly mortgage payments will not change, providing a sense of stability and predictability. The ‘3’ represents the term of the mortgage, not to be confused with the amortization period, which is the total time it takes to pay off your mortgage in full.
In recent months, 3-year fixed mortgage rates have surged in interest among Canadian homebuyers and homeowners. This trend can be attributed to the rapidly rising rate environment throughout 2025.
The Bank of Canada reduced its target for the overnight rate to 2.75% on March 12, 2025, causing variable mortgage rates to soar and fixed mortgage rates to climb. Many Canadians are now seeking a balance between long-term security and short-term flexibility, making 3-year fixed rates an attractive option.
Current 3-Year Fixed Mortgage Rates
As of January 6, 2025, the lowest 3-year fixed mortgage rate in Canada is 4.04%, offered by a Big 6 Bank. However, rates can vary depending on the lender and your specific situation. It’s essential to compare rates from multiple providers to find the best deal for your needs.
Here are some of the best 3-year fixed mortgage rates currently available from top Canadian lenders:
| Rate | Provider | Payment |
|---|---|---|
| 4.04% | Big 6 Bank | $2,087/mo |
| 4.39% | Canadian Lender | $2,163/mo |
| 4.64% | Scotiabank | $2,218/mo |
| 4.64% | MCAP | $2,218/mo |
| 4.79% | TD Bank | $2,251/mo |
Historical Trends in 3-Year Fixed Mortgage Rates
How have 3-year fixed rates changed over time?
Looking at historical data can provide insight into the trajectory and volatility of 3-year fixed mortgage rates. Here are the lowest 3-year fixed rates in Canada over the past few years:
| Year | Lowest 3-Year Fixed Rate |
|---|---|
| 2020 | 1.64% |
| 2021 | 1.53% |
| 2022 | 2.34% |
| 2023 | 4.64% |
3 factors can impact 3-year fixed mortgage rates:
- Economic indicators: Metrics such as inflation, GDP growth, and unemployment rates significantly shape mortgage rates.
- Bond yields: Fixed mortgage rates are closely tied to government bond yields, particularly the 3-year bond yield for 3-year fixed rates.
- Bank of Canada policy: The central bank’s decisions regarding the overnight rate can influence both fixed and variable mortgage rates.
Could mortgage rates invert, with short-term rates higher than long-term?
In recent months, the yield curve has inverted in Canada, with shorter-term mortgage rates (like 3 years) now higher than longer-term rates (like 5 years). This is unusual, as shorter terms typically have lower rates. The inverted yield curve could indicate market expectations of rates falling in the future, or it may be due to intense competition among lenders for 5-year mortgage products.
Pros and Cons of a 3-Year Fixed Mortgage
There are 3 main advantages of choosing a 3-year fixed rate:
- A balanced approach to rate protection: A 3-year term provides a middle ground between short-term flexibility and long-term stability. It shields you from potential rate hikes for a reasonable period without locking you in for too long.
- Reduced risk of mortgage breakage penalties: Most borrowers break their 5-year mortgages around the 3.8-year mark on average. By opting for a 3-year term, you reduce the likelihood of incurring mortgage breakage penalties.
- More flexibility to refinance or switch lenders: After the 36-month term, you can refinance your mortgage, switch lenders, or negotiate a better deal without limitations or penalties.
There are also 3 disadvantages of a 3-year fixed term:
- Limited protection against rising rates compared to longer terms: While a 3-year term provides some protection against rate increases, it may not be as robust as a 5-year or longer term. You could face higher rates when renewing if market conditions change.
- Higher potential breakage penalties than variable rates: Fixed-rate mortgages, including 3-year terms, often come with substantial penalties for early termination. These penalties can amount to three months’ interest or more, which can be costly if you need to break your mortgage.
- More frequent renewal and renegotiation required: With a shorter term, you’ll need to renew your mortgage more often. This involves additional paperwork, rate research, and renegotiation efforts, especially if your current lender doesn’t offer competitive rates upon renewal.
How do 3-year fixed rates compare to other mortgage terms?
Generally, 3-year fixed mortgage rates fall between shorter-term rates (like 1 year) and longer-term rates (like 5 years or 10 years). However, these relationships can change depending on market conditions. Here’s a comparison of average mortgage rates for various terms as of January 2025
| Term | Average Rate |
|---|---|
| 1-Year Fixed | 6.02% |
| 2-Year Fixed | 5.97% |
| 3-Year Fixed | 5.77% |
| 4-Year Fixed | 5.74% |
| 5-Year Fixed | 5.60% |
| 6-Year Fixed | 6.38% |
| 7-Year Fixed | 6.42% |
| 10-Year Fixed | 6.62% |
What’s the difference between a 3-year and 5-year fixed-rate mortgage?
The primary difference between a 3-year and 5-year fixed-rate mortgage is the length of the term. With a 3-year term, your rate is locked in for three years, while a 5-year term provides rate stability for five years. Historically, 5-year fixed rates have been more popular among Canadians, but 3-year terms are gaining traction due to the current rate environment.
A 3-year fixed rate makes more sense than a 5-year term when:
- Expecting interest rates to decrease in the near future: If you believe rates will drop within the next few years, a 3-year term allows you to take advantage of lower rates sooner when renewing.
- Planning to break the mortgage or make changes within 3 years: If you anticipate selling your home, refinancing, or making other changes to your mortgage within three years, a shorter term can help you avoid hefty breakage penalties.
What are the trade-offs between short-term flexibility and long-term stability?
Choosing between a 3-year and 5-year fixed rate involves weighing flexibility and stability. A 3-year term offers more flexibility to adapt to changing market conditions or personal circumstances, but provides less long-term protection against rate hikes. Conversely, a 5-year term offers greater stability and peace of mind, but it may come with higher penalties if you need to break your mortgage early.
Qualifying for a 3-Year Fixed Mortgage
Can you get approved for a 3-year fixed-rate mortgage in Canada?
Yes, many lenders offer 3-year fixed rate mortgages in Canada. However, approval depends on your specific financial situation and the lender’s requirements.
What are the requirements to qualify for a 3-year fixed mortgage?
To qualify for a 3-year fixed mortgage, you generally need:
- A good credit score (usually 650 or higher)
- Stable income and employment
- A down payment of at least 5-20% of the home’s purchase price
- Debt-to-income ratios within the lender’s acceptable range
All borrowers, including those applying for a 3-year fixed-rate mortgage, must pass the mortgage stress test. This means you need to qualify at the higher of either:
- The Bank of Canada’s 5-year benchmark rate (currently 5.25%)
- Your contracted mortgage rate plus 2%
The stress test ensures you can afford your mortgage payments if rates rise, providing a buffer for both you and the lender.
How can you find the lowest 3-year fixed mortgage rates?
To find the best 3-year fixed mortgage rates:
- Shop around and compare rates from multiple lenders, including banks, credit unions, and mortgage brokers.
- Negotiate with lenders and ask if they can match or beat rates offered by competitors.
- Consider working with a mortgage broker who can help you access a wide range of lenders and rates.
While the interest rate is important, it’s not the only factor to consider when choosing a mortgage. Other factors include:
- Prepayment options: Look for a mortgage that allows you to make extra payments or pay off your mortgage early without penalties.
- Portability: If you plan to move before your term ends, ensure your mortgage is portable, meaning you can transfer it to a new property without breaking the term.
- Flexibility: Consider a mortgage that allows you to switch between fixed and variable rates or change your payment frequency without penalties.
Could a mortgage broker help you get the best rate and terms?
Working with a mortgage broker can be beneficial, as they have access to a wide range of lenders and can help you find the best rates and terms for your situation. Brokers can also negotiate on your behalf and provide expert advice tailored to your needs.
Is a 3-year fixed-rate mortgage right for you?
A 3-year fixed-rate mortgage can be a good choice if you:
- Want a balance between short-term flexibility and medium-term stability
- Believe interest rates may decrease in the next few years
- Plan to make changes to your mortgage within the next three years
However, it’s essential to consider your unique financial situation and goals when deciding on a mortgage term.
Key takeaways about 3-year fixed mortgages in Canada
- 3-year fixed rates provide three-year stability, protecting you from rate hikes during that time.
- They offer a middle ground between short-term flexibility and long-term security.
- 3-year fixed rates are gaining popularity due to the current high-rate environment and expectations of rates falling in the future.
- It’s crucial to compare rates from multiple lenders and consider factors beyond just the interest rate when choosing a mortgage.
FAQs
How do 3-year fixed mortgage rates compare to variable rates in Canada?
3-year fixed mortgage rates are typically higher than variable rates, but they provide stability and predictability for the mortgage term. Variable rates may be lower initially but can fluctuate based on market conditions.
Can you break a 3-year fixed mortgage contract early in Canada?
Yes, you can break a 3-year fixed mortgage contract early, but you may be subject to prepayment penalties. These penalties can be substantial, often equal to three months' interest or the interest rate differential (IRD), whichever is higher.
Do 3-year fixed mortgages have prepayment options in Canada?
Many 3-year fixed mortgages in Canada offer prepayment options, such as making lump-sum payments or increasing your regular payment amount. However, the specific options and limits vary by lender, so it is essential to review your mortgage contract carefully.
Is a 3-year fixed mortgage a good option for first-time homebuyers in Canada?
A 3-year fixed mortgage can be a good choice for first-time homebuyers who want stability and flexibility. It protects against rate increases for three years while allowing for the possibility of renewing at a lower rate sooner than with a longer term.
How often do 3-year fixed mortgage rates change in Canada?
3-year fixed mortgage rates can change daily or even multiple times a day, depending on market conditions and lender competition. However, once you lock in a 3-year fixed rate, your rate will remain the same for the three-year term.
Do credit unions offer 3-year fixed mortgages in Canada?
Yes, many credit unions in Canada offer 3-year fixed mortgages. Credit unions can sometimes provide lower rates or more flexible terms than larger banks, so it's worth including them in your mortgage search.
Can you switch from a variable to a 3-year fixed mortgage in Canada?
Yes, most lenders allow you to switch from a variable to a 3-year fixed mortgage, although you may need to pay a conversion fee. Keep in mind that the fixed rate you receive will be based on current market rates, which may be higher than your existing variable rate.
How can BestMO help you navigate your options?
At Bestmortgageonline.ca, our team of experienced mortgage professionals is dedicated to helping you find the best mortgage solution for your unique needs. We work with a wide range of lenders across Canada to provide you with access to competitive rates and flexible terms. Whether you’re considering a 3-year fixed-rate mortgage or another option, we’re here to guide you through the process and ensure you make an informed decision. Contact us today to learn more about how we can help you achieve your homeownership goals.
