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

Most Canadians opt for fixed rates because they don’t want to worry about unexpected monthly expenses. A fixed rate gives Canadians peace of mind knowing how much they’ll need to pay each month.

For those looking for short-term security without the long-term commitment, 2-year fixed mortgage rates can be ideal. While 5-year fixed mortgage rates are more commonly pursued, 2-year fixed interest rates give homeowners the option of renewing their mortgage much sooner. Depending on the market, this early renewal can catch them a better deal or wind up increasing their interest rates. Those pursuing current 2-year fixed mortgage rates will have to be prepared to pay more money if rates start to climb.

One benefit of this added risk is that 2-year fixed mortgages have lower interest rates than their 3-year and 5-year counterparts. This could be a strategic move for homeowners expecting their income to temporarily drop, such as through a parental leave from work.

If you’re looking for comparisons of 2-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 2-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 2 year mortgage.

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.

Find the best 2-year fixed mortgage rates in Canada today.

Your questions about 2-year fixed-rate mortgages, answered.

What is a 2-year fixed-rate mortgage?

A 2-year fixed mortgage essentially means that a mortgage has a term of two years. This is how long you’ll pay back a mortgage at its negotiated rate.

Of course, the vast majority of us can’t pay a mortgage within 2 years itself. Buyers typically need to pay down their mortgage over a series of terms. When your 2-year fixed term mortgage eventually comes to an end, you’ll need to renew it or negotiate a new one.

2-year fixed mortgage rates today also keep the same interest rate over the entire length of the term. Variable interest rates, by comparison, fluctuate based on the behaviour of the Bank of Canada. While you might find a good rate during your 2-year term, interest rates could rise when it’s time to renew.

But what does it mean to have a fixed or variable mortgage? Both terms refer to how your lender will calculate interest on your mortgage loan. There are two ways lenders can calculate interest. They can be fixed or variable.

Fixed mortgage: Interest rates on fixed-rate mortgages stay the same for the entire term. Interest rates are usually higher than the rates for variable rate mortgages (see below).

Variable mortgage: Interest rates on variable rate mortgages will fluctuate with the bank’s benchmark lending rate. Interest rates tend to be lower initially than with fixed-rate mortgages, so you’ll want to consider whether you’ll be able to afford your payments if interest rates increase.

Another important step in the journey to get a good deal on a 2-year fixed mortgage rate, you’ll need to decide 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 2-year fixed-rate closed mortgage means that you’ll make steady monthly payments over a duration of 2 years. For Canadians looking for the cheapest 2-year fixed-rate mortgage with no fees, open mortgages may be the better bet. With closed mortgages, penalties in the form of fees are given if the contract of the mortgage is broken at any time.

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, 2-year fixed open mortgage rates in Canada can be a little higher than closed mortgage rates.

So, what is the lowest 2-year fixed-rate mortgage in Canada? LowestRates.ca’s mortgage rate comparison tool can help you find the answer.

Just tell us what kind of mortgage you’re seeking: are you buying a new home, or are you refinancing or renewing your mortgage? Next, we’ll put you in touch with a broker that can connect you to the financial institution offering you the lowest mortgage rate.

Since most Canadians don’t choose 2-year mortgages, we offer the ability to compare 3 or 5-year mortgages. We recommend seeing what your mortgage payment would be with one of terms first.

However, if you know that a 2-year mortgage is the right choice, you can ask the broker we connect you with to show you options from a multitude of lenders. This will help you gauge whether you should go with a mortgage brokerage or a Canadian bank for your 2-year fixed mortgage rates.

What is the interest rate on a 2-year fixed-rate mortgage?

One way we can estimate the future of mortgage rates is by looking to the past. That way, we can spot trends that might indicate the direction of current mortgage rates. That said, there are many variables when it comes to mortgage rates and the past should only be used as a guideline. Mortgage rates always change, and as a homeowner, you’ll need to accept the idea that you could be paying more as time goes on.

Although 2-year fixed rate mortgage offers change daily, LowestRates.ca has you covered. Click the pink “Get Started” button at the top of the page to be connected with a broker.

Since most Canadians don’t choose 2-year mortgages, we offer the ability to compare 3 or 5-year mortgages. We recommend seeing what your mortgage payment would be like at one of terms first.

The mortgage broker we connect you with can show you the latest 2-year fixed mortgage rates brokers and bankers are offering, if you still feel that a 2-year mortgage term is the right choice for you.

What are the fees involved with a 2-year fixed-rate mortgage?

Many potential buyers are eager to find the best 2-year fixed mortgage rates with no payable fees. Unfortunately, 2-year fixed mortgage rates with no fees aren’t a thing. All mortgage loans inevitably include fees.

To ensure you’re not surprised by any fees, we’ve created a list of mortgage closing costs that you’ll need to factor in your budget.

Mortgage broker fees: If you pursue a mortgage with the help of a broker, you’ll have to pay the broker a finder’s fee. If you have a low credit score or need a high ratio mortgage (making you a subprime borrower), you may also be required to pay another fee in advance. The broker uses this to cover their own costs in case you’re denied a mortgage.

Mortgage default insurance: If you’re a Canadian unable to make a down payment of 20% or greater, you’ll be required to buy mortgage insurance from The Canadian Mortgage Housing Corporation. This insurance is designed to protect your lender in case you default on a payment. These monthly insurance costs will be folded into your mortgage payments.

Provincial Sales Tax (PST): Depending on where you live, a Provincial Sales Tax (PST) could be added to your mortgage balance. This must be paid in full when you close on a new property.

Interest adjustment costs: If you close on a property during the middle of the month, you may be charged for an interest adjustment. Your lender could charge you for any interest accrued before you made your first full mortgage payment.

Appraisal fee: Before approving a mortgage, lenders typically want to see an independent appraisal of your house, condo or townhome to see if it meets their lending criteria. You’ll also be responsible for this payment.

Prepayment penalty: If you’re eager to make additional payments on your mortgage, but currently have a closed mortgage, you’ll be given a prepayment penalty for making greater payments than expected. To avoid this happening, opt for an open mortgage instead.

In short, no-fee mortgages are a fantasy. We hope factoring the above fees into your home purchasing plan will help you prepare as best as possible for your new home. However, this isn’t an exhaustive list. There are often other costs associated with home ownership, such as legal costs, property taxes, and land transfer taxes.

Where can I get the cheapest rate on a 2-year fixed-rate mortgage in Canada?

When pursuing a low rate, you’ll need to decide to go with either a banker or a broker. Brokers aren’t tied to any institutions, so they can sometimes shop around and offer more competitive rates. However, that doesn’t mean you should outright dismiss banks. Banks also can offer low rates, especially to loyal or ideal customers.

To get the best deal possible, try to meet the following criteria:

  • Your Total Debt Service Ratio is 44% and under and your Gross Debt Service Ratio is 39% or less.
  • You pass the mortgage stress test.
  • You have a high credit score.
  • You have a stable income.
  • You can make a down payment of 20% or greater.

If you meet all these requirements, you’ll be in a good position to find a mortgage loan with a top lender. If you’re not in good standing with the above, you might have to pursue a B lender, who could charge higher interest rates.

What other mortgage terms are available?

A mortgage term is the length of time you’ll be tied to a particular mortgage contact. This contract will explain how your interest rate will be determined and whether or not you have any prepayment privileges. It’s always important to read the fine print before signing anything. Once the term ends, you can renegotiate your mortgage. You’ll likely end up signing on to multiple mortgage terms throughout the duration of the repayment process.

There are both short-term and long-term mortgages in Canada. The shortest mortgage is six months and the longest is 10 years. Most Canadians opt for something in the middle — which is why 5-year mortgages are the most popular with homeowners. A mortgage term of 4 years or less, like a 2-year fixed mortgage, is considered short-term. Mortgages above 4 years are considered long-term.

Short-term mortgages are appealing because they often have lower interest rates. Lenders know they’re going to get a return on their investment without waiting too long.

With longer-term mortgages, interest rates can be higher, but buyers appreciate the stability they offer. These mortgages can be tricky to navigate, however, if you need to refinance somewhere down the road. This comes with an expensive price tag.

What is the difference between a 2-year vs 5-year fixed-rate mortgage?

  • 2-year mortgages have lower rates than 5-year mortgages.
  • 2-year mortgages have shorter contracts, ending after 2 years vs 5 years.
  • 2-year mortgages have you covered if you plan to pay off your mortgage sooner than later.

To get the cheapest mortgage rates possible, compare rates from both bankers and lenders at LowestRates.ca.

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