Why five-year fixed rates are still proving popular

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For Chase Belair (pictured top), nesto’s co-founder and principal broker, the enduring popularity of longer-term fixed rates reflects a shifting trend in the mortgage space.

“When the Bank of Canada started increasing rates, [beginning] last March and throughout the year, five-year variable’s popularity obviously began to diminish quite quickly, and the popularity of two-, three-, and sometimes even one-year terms increased quite a bit towards the end of the year,” he said.

“At the time, also what was noteworthy was the spread between the two-, three-, and four-year rates was not too far away from the five-year rates,” he said. “So you really weren’t losing too much in terms of your mortgage payment by choosing a shorter term.”

Because of that slight spread, borrowers were rarely leaving a sizeable amount on the table in choosing shorter-term options – but it’s risen since the end of April and beginning of May, meaning that short-term mortgages now have a significantly higher mortgage payment in many cases than their longer-term counterparts.

“What we saw in April, May, and now getting into June, is the five-year being [much] more popular because the payment is that much lower,” Belair said. “People want that lower monthly payment and they’re forfeiting the ability to make a bet on what rates would be in three years or two years.”

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