Best 2 Year Fixed Mortgage Rates

The 2-year Fixed Mortgage

People choose 2-year terms for three primary reasons:

1. Because the rate and payment is lower than most other terms.
2. Because they don’t expect to have a mortgage much longer than two years.
3. For more refinance flexibility (because you can renegotiate the mortgage sooner without penalty).

Two-year mortgages have a few disadvantages, however:

• Renewing in two years 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.
• In a declining interest rate environment, a fixed rate (even if only for two years) will usually cost you more than a variable rate.

Here are a few more tidbits about this particular term:

• About 1 in 14 borrowers select 2-year mortgages (source: Mortgage Professionals Canada).
• You can lock in your renewal rate in just 18 to 21 months (since most lenders offer 90- to 180-day rate holds).
• To get a 2-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 5-year rate,” as set by the Bank of Canada.
• Many lenders do not pay legal and appraisal fees when you switch into a 2-year mortgage. (By contrast, lenders often pay legal and appraisal costs on terms of three or more years.)

If you want to guesstimate where 2-year rates are headed short term, keep an eye on Canada’s 2-year government bond yield (below).

Two-Year Government Bond Yield

Source: Bank of Canada