How to Choose Between a 3-Year and 5-Year Fixed Mortgage Rate

Choosing between a 3-year and 5-year fixed-rate mortgage might seem like a simple decision, but it can have a big impact on your long-term finances. Both terms have their pros and cons, and the best one for you depends on market trends, your personal risk tolerance, and your future plans.
This guide breaks down how these two terms compare, how to make your decision, and what kind of interest savings or risks to expect under different scenarios.

Fixed or Variable?

Before we divede into 3 vs 5 years, let’s clear up one thing: are you sure you want a fixed mortgage rate?

• Fixed-rate mortgages lock in your interest rate and monthly payments for the full term. Great for peace of mind.
• Variable-rate mortgages fluctuate with the Bank of Canada’s rate changes. These can save you money if rates drop—but come with more risk.

If you like predictability or are worried about rising rates, a fixed term is probably the way to go.

Why Do Most Canadians Choose 5-Year Fixed Rates?

Five-year fixed rates are the go-to for most homebuyers because they offer:

• Payment stability for half a decade
• Protection from rate hikes
• Less frequent renewal hassle

This is especially helpful if you’re a first-time buyer or need a reliable monthly budget.
If you break your mortgage early, penalties can be steep. And if rates drop, you’re stuck paying the higher locked-in rate.

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What Makes a 3-Year Fixed Rate Attractive?

Three-year terms give you more flexibility.

• Shorter commitment if you’re unsure where life is headed
• Lower penalties if you sell or refinance sooner
• Faster access to lower rates if rates fall and you renew

You could end up renewing into higher rates. Plus, shorter terms don’t always come with lower interest rates.

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Which Term Is Right for You?

Ask yourself:

• Do I plan to move or refinance within 3 years?
• Do I expect interest rates to fall or rise?
• Am I comfortable renewing more frequently?
• Is budget stability or flexibility more important right now?

A 5-year fixed rate is better if you want to stay put and avoid surprises. A 3-year rate is great if you think rates might drop or your situation could change soon.

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Real Scenarios: How Rates Affect Total Interest Paid

Let’s say you borrow $400,000 over a 25-year amortization. Here’s how your interest costs could vary:

If Rates Stay the Same

• 3-Year Fixed Rate: 4.79%
• 5-Year Fixed Rate: 4.34%

Over 5 years, the 5-year term saves you around $10,780 in interest.

If Rates Drop by 1% in Year 4

• Renew your 3-year term at 3.79%
• Now the 3-year term saves you $2,326 over 5 years

If Rates Rise by 1% in Year 4

• Renew your 3-year term at 5.79%
• Now the 5-year term saves you $19,826 over 5 years

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FAQs

Which is better: 3-year or 5-year fixed?
Depends on your life plans and the rate environment. 5-year gives you stability. 3-year gives you flexibility.
What if I break my mortgage early?
Shorter terms usually mean lower penalties. But check with your lender.
Can I switch from 3 to 5 years later?
Yes—once your term ends, you can shop around and lock into a new term that suits the market and your situation.

Need to take a step back and look at the big picture?
Start with this guide on how to choose your mortgage rate Or if you’re debating between fixed and variable instead, check out this fixed vs. variable explainer.

Final Thoughts

Picking between a 3- or 5-year fixed mortgage rate isn’t just about what’s cheaper today. It’s about what fits your lifestyle, financial goals, and how much rate risk you can tolerate.
If you’re still unsure, connect with a trusted mortgage advisor who can help you crunch the numbers and figure out the best move.