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What is a 5 year fixed rate?
The term “5 year fixed rate” is made up of two parts: thelength of time and the type of mortgage.
The length of term is how long you agree to a certain set ofconditions for your mortgage, and the type of mortgage dictates the interestrate you’ll pay. A fixed rate mortgage means that the interest rate won’tchange throughout the duration of the term (in this case, five years.)
When the term ends, your mortgage isn’t paid off. The end ofa term means you’ll have to get a new term, with new conditions and interestrates.
Who is a 5-yearfixed term best for?
There are a couple reasons to go for a 5-year fixed term:
1. You want to strike a balance between locking ina low rate and taking advantage of future rate drops
2. You want a simple monthly payment for budgetingpurposes
3. You are worried that rates will rise soon
4. They are often the cheapest term option, after1-year terms
However, there are a few downsides to this as well:
1. If rates go down, you’re stuck paying a higherrate
2. They can have high penalties for breaking early
How popular is a 5 year fixed term?
In Canada, most homebuyers choose a fixed rate mortgage.
| Mortgage Type | Purchase During 2016 | Renewal or Refinance During 2016 | Did not purchase, renew or refinance in 2016 | All mortgages |
| Fixed rate | 80% | 74% | 66% | 68% |
| Variable (adjustable) rate | 17% | 21% | 27% | 25% |
| Combination | 3% | 6% | 6% | 6% |
During 2016, 80% of those buying a home opted for a fixedterm mortgage, most likely because of the expectation of rising interest ratesin the years to come. The figure of the amount of fixed mortgages in 2016 is14% higher than the amount of fixed mortgages that were not up for renewal in2016, having been purchased up to 10 years prior.
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