HSBCMore From HSBC
MeridianMore From Meridian
Simplii FinancialMore From Simplii Financial
First NationalMore From First National
Canadian WesternMore From Canadian Western
TDMore From TD
TangerineMore From Tangerine
RBCMore From RBC
Alterna SavingsMore From Alterna Savings
BMOMore From BMO
Investors GroupMore From Investors Group
CMLSMore From CMLS
DUCAMore From DUCA
EquitableMore From Equitable
ICICIMore From ICICI
ManulifeMore From Manulife
Canada LifeMore From Canada Life
National BankMore From National Bank
DesjardinsMore From Desjardins
ScotiabankMore From Scotiabank
First OntarioMore From First Ontario
LaurentianMore From Laurentian
A two-year fixed mortgage is a type of mortgage where the interest rate is locked in for two years. This means that the rate will not change for the duration of the term. In addition to your interest rate not changing, your mortgage payment amount won’t change either. This can be helpful in budgeting and planning. It can also be a good idea for borrowers that think that interest rates have peaked, and will decrease in the near future.
Looking to get a 2-year fixed mortgage? There are some things that you should keep in mind. This page will take a look at 2-year fixed mortgage rates, how they work, and why you should or shouldn’t get a mortgage with a 2-year term.
|Less than 1 year||1 to less than 3 years||3 to less than 5 years||5 years and more|
Source: Government of Canada
A fixed mortgage is a type of loan where the interest rate and monthly payments stay the same for the duration of the loan. You won't have to worry about your interest rate going up or down, and your monthly payment won't change. However, when you do need to consider current mortgage rates is when it’s time to renew your mortgage.
In Canada, mortgage terms are less than the mortgage amortization. This means that before your mortgage is fully paid off, you’ll have multiple terms where your interest rate and payment might change. There are a variety of different term lengths to choose from, which can range from as short as 6-months to 10-years! While the most common mortgage in Canada is the 5-year fixed mortgage, there are plenty of reasons to choose a shorter mortgage term.
|2-Year Mortgage||5-Year Mortgage|
The biggest advantage of choosing a shorter mortgage term is the flexibility that it provides. If mortgage rates decrease significantly, you can renew your mortgage earlier. You won’t have to wait as long as you would if you have a longer mortgage term. However, the opposite outcome can also happen. Since your term is shorter, you might be forced to renew into a higher rate if your mortgage comes up for renewal.
A short mortgage term might be helpful in a high-interest rate environment when you think rates will come down soon. You won’t be locked into a higher rate for that much time, and you’ll be able to renew at a lower rate if rates go down. However, it’s not possible to determine where exactly rates will go in the future.
Another advantage of a 2-year term is that mortgage penalties can also be lower than if you had a 5-year term. That’s because for closed mortgages with a fixed rate, mortgage penalties can be based on an “interest rate differential”, which is the difference in interest that you would have paid. You’ll be charged mortgage penalties if you make more prepayments than allowed by your bank. If you think you might want to pay off your mortgage early, if you would like to make more prepayments than allowed, or if you plan on selling your home, a short mortgage term can bring you to the renewal period much earlier or reduce the penalties charged. You can make as many prepayments as you would like during your renewal period without penalties. You can even pay off your mortgage in full at renewal.
Normally, shorter term mortgages have a lower interest rate than longer term mortgages. That’s because with a longer term mortgage, your rate is locked in for a longer period of time. It’s possible for your lender to not make as much money as they could have if rates decrease during your term. To make up for this, lenders will usually charge a premium for this. To see the opposite effect, variable rate mortgages usually have a lower interest rate. That’s because the rate is not locked in at all and can change at any time, meaning that lenders aren’t at any risk of losing out on interest rate changes.
5-year mortgages are the most common in Canada because they balance between having a long-enough term that you don't have to renew too often, while still having a reasonable interest rate. With a shorter mortgage term, you'll have to renew more often. This can be a hassle, and it might be more stressful when you don't know how much your mortgage payments will be in the near future. Budgeting and planning for the future can be harder, and you might be forced to renew at a higher rate.
You’ll also still need to pass the mortgage stress test. This would be either the posted 5-year fixed mortgage rate or your 2-year fixed mortgage rate + 2%. Getting a shorter mortgage term might not help make it easier to qualify for a mortgage.