6-Month Fixed Mortgage Rates
What You Should Know
- In Canada, the shortest mortgage term available from most lenders is a 6-month mortgage.
- A 6-month mortgage can be beneficial for borrowers looking to sell their home soon, those that need flexibility and the ability to renegotiate after 6 months, or if you think rates will significantly decrease soon.
- A 6-month fixed mortgage comes with potential risks, such as a typically higher interest rate and limited options due to fewer lenders offering the product.
Amount
PurposeMortgage Purpose
| Lender | Rates |
|---|---|
Butler Mortgage Check More Rates 4.7/5(863 reviews) | 4.59% |
6ix Mortgage Group Check More Rates 4.9/5(82 reviews) | 4.59% |
Scotiabank Check More Rates | 7.85% |
National Bank Check More Rates | 7.94% |
Meridian Check More Rates | 7.94% |
Laurentian Check More Rates | 7.94% |
Canadian Western Check More Rates | 7.95% |
Desjardins Check More Rates | 7.99% |
TD Check More Rates | 8.14% |
First Ontario Check More Rates | 8.19% |
CIBC Check More Rates | 8.25% |
DUCA Check More Rates | 9.99% |
While most mortgages in Canada have a term length of a few years, with 5-year fixed mortgages being especially popular, a 6-month mortgage is also an option for home buyers. As the name suggests, a 6-month fixed mortgage has a rate that is locked in for a period of 6 months. It also means that the borrower is only locked in for 6 months, which is its main advantage.
Advantages of a 6-Month Fixed Mortgage
- Short mortgage term: A 6-month mortgage offers a shorter term compared to the more common longer-term mortgages, such as a 3-year or 5-year term. This is useful for borrowers looking to sell their home soon or for those who prefer to have more flexibility in their mortgage.
- Ability to renegotiate after 6 months: Since a 6-month fixed mortgage only has a term of 6 months, borrowers have the opportunity to renegotiate their mortgage at the end of this period. This can be beneficial if market conditions change or if the borrower's financial situation improves.
- Holding off on locking-in a high interest rate: If interest rates are expected to decrease in the near future, a 6-month fixed mortgage allows borrowers to hold off on locking in a high interest rate for a longer period of time. This can potentially save them money in the long run.
Disadvantages of a 6-Month Fixed Mortgage
- Potential for a higher interest rate: While a 6-month fixed mortgage offers the potential for a lower interest rate if rates decrease at renewal, there is also the risk of rates increasing after the 6-month period. If this happens, borrowers may face higher mortgage payments.
- Frequent renewal: Since a 6-month fixed mortgage has a short term, borrowers don’t have much time before they have to renew their mortgage. This can be time-consuming and may result in additional fees with some private mortgage lenders.
- Limited options: Not all lenders offer 6-month fixed mortgages. This means that borrowers may have limited options when it comes to choosing the best 6-month fixed mortgage rate and terms for their mortgage.
- Potential Strings Attached: Some lenders offer attractive 6-month rates to get your mortgage business. In the fine print, they would require you either to renew to a longer-term mortgage with them or to pay a significant penalty at the end of your term.
The Shortest Mortgage Term in Canada
If you’re looking for the shortest mortgage term, then you’ve found it with a 6-month mortgage. Most lenders in Canada don't usually offer fixed mortgages for less than 6 months. A notable exception is National Bank, which offers a 3-month fixed mortgage.
In addition to the 6-month mortgage, the next shortest term options are typically 1 or 2-year terms. These still provide some flexibility and potentially lower interest rates compared to longer-term mortgages, but may not be as short as a 6-month term.
Is a 6-Month Fixed Mortgage Right for You?
A 6-month fixed mortgage may be a good option if you are planning to sell your home in the near future or if you prefer shorter mortgage terms with more flexibility, due to their shorter commitment. However, it's important to carefully consider the potential risks and disadvantages of a 6-month mortgage term before making a decision.
Additionally, it's important to note that a 6-month fixed mortgage is not as common as longer-term mortgages in Canada. This means that there may be fewer options available.
6-Month Fixed Mortgage Alternatives
If you’re looking for an alternative to a 6-month fixed closed mortgage and want the ability to pay off the mortgage at any time without penalties, then an open mortgage is an option. The difference between open and closed mortgages is that an open mortgage is a type of mortgage that allows you to pay off the entire balance at any time during the term without incurring any penalties. As an open mortgage, the term length can be longer without impacting your ability to prepay your mortgage early. There are even 6-month open mortgages available at some lenders if you need even more flexibility.
With a closed mortgage, how much you can make in additional payments is often limited. This limit is typically 15% or 20% of the original principal each year, with interest penalties for paying more than this. In exchange for this, closed mortgages have lower interest rates, while open mortgages have higher interest rates.
If you’re looking for an alternative to a 6-month fixed mortgage and want the ability to benefit from decreasing mortgage rates in the near future, another option is to get a variable mortgage rate. This type of mortgage follows the market and adjusts its interest rate based on changes in your lender’s prime rate, which is affected by rate decisions by the Bank of Canada. As a result, when interest rates decrease, so too does your mortgage rate. However, it’s important to keep in mind that if interest rates increase, so will your mortgage rate.
What Happens if I Sell My Home With a Long-Term Mortgage?
If you sell your home before the end of a long-term mortgage, you may be subject to penalties or fees. This is because when you take out a mortgage, you are agreeing to pay back the loan over a specific period of time. If you end the mortgage early by selling your home, lenders may charge a mortgage prepayment penalty. This may be avoided by porting or transferring your mortgage, if it won’t be fully paid off.
On the other hand, with a 6-month fixed mortgage, you have the option to refinance or switch to a different mortgage term after the six months is up without incurring any penalties. This can be beneficial if you plan on selling your home within a short period of time.
How to Qualify for a 6-Month Fixed Mortgage
Qualifying for a 6-month fixed mortgage is similar to qualifying for any other type of mortgage. Lenders will check your credit score, income, and debt-to-income ratio to determine if you are eligible.
However, since a 6-month fixed mortgage often has a higher interest rate than other mortgage terms, the mortgage stress test may have a higher mortgage qualifying rate. That’s because the stress test will be either at your 6-month fixed mortgage rate + 2% or a floor of 5.25%, whichever is higher. This means that you may need a higher credit score or a lower debt-to-income ratio to be approved for this type of mortgage.
Convertible Mortgages
Most convertible mortgages are for a 6-month term with a fixed interest rate, while some lenders also offer 6-month variable mortgages. Convertible mortgages are a type of mortgage that allows borrowers to switch to a longer-term closed fixed mortgage at any time during the term. This can provide flexibility and allow for potential savings if interest rates decrease.