Best 1 Year Fixed Mortgage Rates

The 1-year Fixed Mortgage

People choose 1-year mortgages for four primary reasons:

1. Because the rate is lower than other terms.
2. Because they don’t expect to have a mortgage much longer than 12 months.
3. For more refinance flexibility (because you can renegotiate the mortgage sooner without penalty).
4. Because they think variable-rate discounts will improve within 12 months.

One-year mortgages have some disadvantages too:

• Renewing in one year means you may have to pay switching costs more frequently if you change lenders.
• If rates jump, you’re not protected at renewal like you would be with a longer fixed term.

Here are a few more tidbits about this particular term:

• Only about 1 in 16 borrowers choose 1-year mortgages.
• In terms of interest cost, studies have shown that 1-year terms perform very similarly to variable-rate mortgages.
• Some lenders are notorious for quoting poor rates to people who try to renew their 1-year terms.
• To get a 1-year term, most—but not all—lenders make you prove you can afford a payment based on a higher posted 5-year fixed rate (a.k.a. “qualifying rate”). All borrowers who have less than 20% equity must qualify based on the higher “benchmark five-year rate,” as set by the Bank of Canada.
• You can lock in your renewal rate in just six to nine months (since most lenders offer 90- to 180-day rate holds).
• Many lenders do not pay legal and appraisal fees when you switch into a 1-year mortgage
  (By contrast, lenders often pay legal and appraisal costs on terms of three or more years.)
• The most flexible 1-year terms let you convert into a longer term at any time with no penalty.

If you want to guesstimate where 1-year rates are headed short term, keep an eye on Canada’s 1-year treasury bill yield (below).

Source: Bank of Canada