Best 3 Year Fixed Mortgage Rates in Ontario

The 3 year fixed mortgage rate was Ontarios most popular rate in 2024, with over 50% of homeowners opting for this term.

Compare the best 3 year fixed mortgage rates Ontario from 18 leading Banks, institutional lenders and local Ontario Credit Unions.

In the review article below, we look at why the 3 year fixed mortgage is so popular, and as we move into 2025, if it will be the best fit mortgage for you.

Why the 3 Year Fixed Mortgage Rate Was Ontarios Most Popular Rate in 2024

Since mortgage interest rates are the single biggest expense for many in Ontario, it makes sense to look for the best way possible to save on this cost.in short, the three-year fixed rate has been popular because homeowners appreciate the potential for it to help save money, today and at renewal time, while protecting against short term interest rate fluctuations. Let’s take a closer look.

Slowing economy and Decreasing Rates

Given the likelihood of the economy slowing down and rates falling in turn, the possibility of a lower renewal rate in 2027-2028 is reasonably good. The economic consensus shows mortgage rates holding below the 4% range through to 2027. Moreover, the Bank of Canada sees inflation holding steady over the coming 3 years. The signs of the slowing economy include:

• Shrinking / no Canadian GDP growth, and negative per-capita GDP growth.
• Increasing credit card debt levels and reduced savings
• A moderating jobs/ employment market
• A slowing housing market

Lower mortgage rate

While the five year fixed rate is currently the lowest rate compared to its shorter term counterparts (1,2,3 and 4 year mortgages), the three year fixed rate is very close. Compared to a one year fixed and two year fixed, the three year fixed rate is a noticeably lower mortgage rate. 

Lower penalty

The way penalties work on fixed rate mortgages largely has to do with how much time remains in the mortgage term. If rates are either the same or lower, and there is a much longer term, the penalty can be extremely high to break a Fixed mortgage. However, if there is only a year, or perhaps a year and a half left in the term, the penalty may not be as large even if rates have dropped considerably. The closer you are to the end of the term, the more favourable the fixed rate penalty can be. 

Because the end of the term comes sooner than in a five-year term, the likelihood of a higher penalty if the mortgage is broken decreases. Statistically speaking, about 20% of all mortgages are in some way broken/ paid out early during the term. 

Will 3 year fixed mortgage rates still be ideal in 2025?

While there is no guarantee about the economy and mortgage rates over the years to come, our rate simulations demonstrate that the 3 year fixed mortgage rates Ontario provide will a good balance of safety and savings in 2025. 

The 3 year fixed offers an element of medium term rate and payment predictability that may be desired with the 5 year fixed, without the need to wait 5 years for the mortgage renewal to gain a lower rate potentially.

However, as mortgage rates draw closer to 4% or lower, taking a 5 year fixed rate becomes a good idea to protect against the potential for higher rates in the future in case inflation rebounds unexpectedly. The 3 year fixed rate will not be as popular in 2025, giving up some share to variable rates and five-year fixed rates, but will continue to be a leading rate in Ontario and across Canada.

Risks of a three year fixed term

Looking at the economic data in 2024, savings in a three year fixed rate do look probable. However, savings are not guaranteed. Many realities could present themselves over the next 5 years that could prove the 5 year fixed superior to the 3 year including:

Current Five year fixed rate is the lowest in Ontario

It can be seen quickly that the three year fixed mortgage is NOT the lowest rate in Ontario. Currently, it’s the five year fixed rate. Many would argue the logic of selecting a higher-rate mortgage option currently.

Rates move higher or stay higher

What if rates don’t come down in three years, or perhaps drop and then rebound? Therein lies the risks of a three-year rate. Some will argue that the lowest rate (ie. 5 years) should be taken and not to ‘hedge our bets’ and make things complicated. If this resonates with you, then the lower five year fixed may be a superior decision to the three-year.

Here are three economic forces that could cause rates to stay higher for longer:

• The economy adapts to higher rates and performs well with higher rates.
• Political tensions cause the global economy to drift apart into regions. This has the effect of increasing costs, which leads to higher inflation and sustained higher rates.
• Systematic failure, such as government debt demanding much higher rates or the Central Bank’s inability to hold bond yields lower. In other words, a lack of confidence and deterioration in the dollar based monetary system.

Other Factors Affecting Fixed Rate Mortgages

Bond Yields

Fixed rate mortgages are priced against the Government of Canada Bond Yields. These Bonds trade on the market daily, like a stock, and when the Bond Yields move up or down, so do the fixed rate mortgages. The fixed mortgage rates are not priced directly in line with Bank of Canada overnight rate decisions. For example, if the Bank of Canada increases or decreases its rate by 0.25%, you are not likely to see the field rate move up or down that day. Only the variable mortgage rates will fluctuate directly with Bank of Canada rate movements.

Mortgage Lender Policies

Lenders will have times when they want to put the breaks on lending. They may see housing market risk or higher risk of non payments/ across the economy. So by increasing the ‘spread’ between Bond Yields and the mortgage rates banks offer, it:

(1) Earns them more profit per transaction to cushion against the risks, and

(2) Slows down the pace of borrowing in the riskier market.

Typically banks/ mortgage lenders do this all together so it’s difficult to see the spread increase. In 2024, the spread is relatively higher than it was over the past 10 years.

Once mortgage lenders feel comfortable about the market and economic risks, they will turn on the taps again by lowering the spread and seek to earn higher profits through higher volumes of lending.

Tips for Securing the Best Fixed Mortgage Rate 

Improving Your Credit Score: Ensure your credit score is in its best form because, for securing the best fixed mortgage rate, this is where credit counts. As a basic rule of thumb, a good score will involve at least 1-2 credit cards for at least 2 years with no or minimal missed payments. If there is a missed payment, it should not be within the past 6 months. Keep the balance owing to less than half the card limit too. If credit may be an issue, connect with Altrua for advice.

Increase Your Down Payment: Down payment has more effect on mortgage rate than almost any other single factor. Interestingly, if there’s less than 20% down payment and it needs to be a CMHC default insured mortgage, then the rates are the lowest because there is no risk for the lender (they are insured against default). But due to the insurance premium, this may not be the lowest cost route. At 25% down payment or more, the rates can drop to 35% down payment where fixed mortgage rates are close to the CMHC insured rate.

Work with a Mortgage Broker: Working with the right mortgage broker can set you up for success. A good mortgage broker can do the shopping and much of the heavy lifting when it comes to working with the lenders. The result can be a smoother, more pleasant process that saves you money.