Best 4 Year Fixed Mortgage Rates
The 4-year fixed rate is an afterthought to most mortgage shoppers, but they can occasionally offer better value than five-year terms, with more flexibility to refinance sooner without a penalty.
The 4-year Fixed Mortgage
People choose 4-year terms for two primary reasons:
- When they’re meaningfully cheaper than a 5-year fixed, but not much more than a 3-year fixed.
- Because they don’t expect to have a mortgage much longer than four years (the average Canadian breaks or renegotiates their mortgage in 3.7 years).
Four-year mortgages have a few disadvantages, however:
- If rates jump significantly, the rate you renew into (after four years) could cost you more than the upfront savings of choosing a 4-year instead of a 5-year.
- Fixed rates can have higher penalties (versus a variable rate) for early termination.
Here are a few more tidbits about this particular term:
- Only about 1 in 16 borrowers select 4-year mortgages (source: Mortgage Professionals Canada).
- To get a 4-year term, lenders make you prove you can afford a payment based on the posted 5-year fixed rate benchmark rate, as set by the Bank of Canada. If the mortgage is uninsured, you must qualify based on the greater of the benchmark rate or the contract rate plus two percentage points.
- Most lenders pay your legal and appraisal fees when you switch into a 4-year mortgage. (Note: You cannot typically “switch” a collateral charge mortgage or a mortgage linked to a line of credit. Those types of mortgages must generally be refinanced when changing lenders.)
- People who buy homes for their kids in university sometimes choose 4-year terms because they correspond to the time it takes to get a 4-year degree.
If you want to guesstimate where 4-year rates are headed short term, keep an eye on Canada’s 4-year government bond yield. Here’s a chart link.