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1-year fixed-rate mortgages in Canada: what you need to know.

Most mortgage shoppers think in terms of the best 4-year or 5-year deal. Why sign up for a 1-year fixed-rate mortgage — even one with a fantastic interest rate — when you’ll only enjoy the benefit for 12 months?

Well, a 1-year mortgage is a no-brainer if that’s all you need to pay off your house. But there are other reasons to consider a short-term mortgage. A 1-year fixed-rate mortgage can be used in place of a variable-rate mortgage, for example. This can be handy when a 1-year fixed mortgage has a lower interest rate than its variable counterpart.

Moreover, you’ll be able to renew whatever mortgage best meets your current needs — fixed or variable, open or closed, short term or long term.

If you’re looking for comparisons of 1-year fixed mortgage rates, here’s how LowestRates.ca can help.

Most Canadian consumers choose 3 or 5-year mortgages. As a result, these are the mortgage terms we compare in our digital marketplace.

We will connect you to a broker who can compare 1-year fixed mortgage rates from the top lenders in Canada, including the country’s largest banks for you.

We recommend applying for a 3-year mortgage in this instance; the rates on a 3-year mortgage are more comparable to the rates on a 1-year mortgage than they are for a longer-term mortgage (5 years, for example). 

It takes three minutes or less to get mortgage quotes on LowestRates.ca. We offer the ability to compare mortgage rates, whether you’re in the market to get your first mortgage or if you’re renewing or refinancing your current one.

Intrigued? Then read on. We’ll answer your questions about 1-year fixed mortgages — then we’ll help you find the best current 1-year fixed mortgage rates.

Your questions about 1-year fixed-rate mortgages, answered.

What is a 1-year fixed-rate mortgage?

This sounds like a simple question, but there’s actually a bit to unpack — especially if you’re new to the mortgage market.

Term: The first thing to understand is the concept of a “mortgage term.” The term is the number of years your agreement with your mortgage lender will last. It includes the interest rate you’ll pay. In the case of a one-year mortgage, your term will last 12 months.

Your mortgage term is different from the amortization period. Amortization is the number of years it will take to pay down your entire mortgage, both principal and interest. You’ll renew your mortgage term several times during the life of your mortgage. When you renew, you’ll have the opportunity to change details of your mortgage — such as reducing your amortization — or even move to a new mortgage lender.

Fixed-rate: The second important idea is the definition of a “fixed-rate” mortgage. This refers to the type of interest rate you’ll pay. Fixed-rate mortgages charge one rate for the entire term of the mortgage. The alternative is a variable-rate mortgage. They come with interest rates that move up or down with interest rates in the broader economy. Variable interest rates are generally lower than fixed interest rates. But there’s always a risk they may rise above fixed rates over the term of a mortgage. That’s why some people prefer fixed-rate mortgages. They risk paying a bit more over time, but they have peace of mind.

Another important step is deciding between a closed mortgage and an open mortgage.

Closed mortgage: A closed mortgage means that the amount you pay each month is pretty much set in stone. Interest rates on closed mortgages tend to be lower than open mortgages for this reason. In Canada, a 1-year fixed-rate closed mortgage rates mean that you’ll make steady monthly payments over a duration of 1 year. For Canadians looking for the cheapest 1-year fixed-rate mortgage with no fees (or, more realistically, low fees; all mortgages come with fees) open mortgages may be the better bet. With closed mortgages, penalties in the form of fees are given if the mortgage contract is broken before the end of the term.

Open mortgage: An open mortgage lets homebuyers eager to pay down their mortgage as quickly as possible make additional monthly payments on top of what the contract stipulates. As a result, 1-year fixed open mortgage rates in Canada can be a little higher than closed mortgage rates.

To sum it up, a 1-year fixed-rate mortgage is a mortgage loan with a 12-month term, meaning you’ll have to renew when the year is up. Since it’s also a fixed-rate mortgage, you’ll pay a set mortgage rate for the term of the loan. A 1-year fixed-rate mortgage might be a good fit if you’re close to paying off your mortgage.

Want to find out what the lowest 1-year fixed rate mortgage is? Though we only offer the ability to compare 3 or 5-year mortgages, LowestRates.ca can connect you to a broker who can help you hunt down the best 1-year fixed mortgage rates in Canada.

What is the interest rate on a 1-year fixed-rate mortgage?

Mortgage rates rise and fall depending on the overall economy. They usually rise when growth is strong. When growth slows, they tend to fall. The specific 1-year fixed mortgage rate offered to you depends on further factors as well.

Your personal credit rating is important. So is the amount of debt you have compared to your overall income. If you have a lot — car loans or lines of credit, for example — you may not get the best rates possible. It’s a good idea to reduce other debt when shopping for a mortgage if you are able to.

That’s why the answer to ‘What is the best 1-year fixed-rate mortgage?’ will vary slightly for everyone.

What are the fees involved with a 1-year fixed-rate mortgage?

Are you hoping your 1-year fixed-rate mortgage will come with no additional fees? Sorry. You’re out of luck. There’s no such thing as a 1-year fixed mortgage with no fees payable; even the best mortgage will have fees. You’re buying a home, after all, and that transaction costs a bit more than the mortgage alone.

Taxes: Depending on where you live, you may have to pay land-transfer taxes on your home purchase. These may be levied by provincial governments or municipal governments or sometimes — as is the case in Toronto — both. If you’re buying a new home you may also have to pay HST/GST. If you do, ask your mortgage agent about federal and provincial tax credits, such as the federal government’s First Time Homebuyers tax credit. They can help take the sting out of the expense.

Mortgage default insurance: If your down payment is less than 20% of the purchase price of your home, you’ll be taking on a “high-ratio” mortgage. Your lender will require insurance to ensure payments are made. This will cost you somewhere between 2.8% and 4% of your total mortgage depending on the size of your down payment. You can either pay the premium upfront or have it added to your mortgage and pay it down over time. But there is a caveat: At this time, you can’t get insurance on a mortgage of more than $1 million. Keep that in mind if you're home-hunting in places like Vancouver and Toronto. 

Legal fees: You’ll need to hire a lawyer to cover various tasks around finalizing your home purchase. They include reviewing legal documents associated with the sale of the home, ensuring no one else has a claim to the property, drafting mortgage documents, arranging title insurance, and so on. 

Adjustments: You’ll need to reimburse the previous owner of your new home for any payments they may have made in advance. These can include costs such as condo fees, utility fees, and property taxes. Your lawyer can help you figure out if anything is owing. 

Other costs: Your mortgage lender will want proof of fire and property insurance for your new home before finalizing your mortgage. Be sure you have this. You may also want to pay for various services such as a home inspection or home valuation before you buy. Inspections are optional but note your mortgage lender may require a valuation.

As we said earlier, there is no such thing as a 1-year fixed-rate mortgage with no fees. It’s a good idea to estimate the additional costs when you’re calculating how much home you can afford. That way, you won’t be surprised when it comes time to close the deal.

Where can I get the cheapest rate on a 1-year fixed-rate mortgage in Canada?

The question is whether you want to use a mortgage broker or a traditional bank to find a fixed-rate mortgage with a term of 1 year.

Mortgage brokers are popular because they work with multiple lenders — from online banks and credit unions to trust companies and more. You can generally expect a broker to find a lower interest rate than you’ll get from your bank, be it a 1-year fixed mortgage or something else entirely.

Some people, however, prefer the peace of mind that comes from working with a traditional bank. If you have a strong relationship with your bank, it will be able to look at your mortgage as part of a larger financial plan. That alone might be worth paying slightly more for your mortgage than the deals on a 1-year fixed-rate mortgage you might get through a broker. 

Since most Canadians don’t choose 1-year fixed-rate mortgages, LowestRates.ca offers the ability to compare 3 or 5-year mortgages. We recommend seeing what your mortgage payment would be like at one of these terms first.

The mortgage broker we connect you with can show you the latest 1-year fixed mortgage rates from both Canadian banks and independent mortgage brokers if you still feel that a 1-year mortgage term is the right choice for you.

What other mortgage terms are available?

Mortgage terms range from 6 months up to 10 years. The term that works best for you depends on your needs. If your mortgage is almost paid off, you’ll obviously want a shorter term. Or if you think you may move within a certain period, you may choose a matching term to avoid the risk of paying steep penalties to break your mortgage. (Or you can get a portable mortgage that will allow you to transfer your existing agreement to a new home.) 

When interest rates are at rock bottom, some borrowers opt to lock in for as long a period as possible with a 10-year mortgage. These borrowers are generally people who don’t expect to move and who like the idea of a steady payment over the long term — especially if they’re concerned interest rates will be much higher when it comes to renew a shorter-term loan.

Use LowestRates.ca to find today’s rates on 1-year fixed mortgages.

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