Choosing a mortgage sounds like a simple math problem: find the lowest rate, sign the paper, and move on. But in reality, chasing the lowest “sticker price” is a short-term play that can lead to a very expensive long-term headache.

I often talk to homeowners who tell me they don’t care about the term length or whether the rate is fixed or variable… they just want the lowest mortgage rate. Period. While I admire the frugality, that approach ignores the biggest factor in mortgage planning: long-term positioning. 

The lowest rate today isn’t always the one that results in the most savings long term.

Let’s break down the current 2026 landscape to see which path actually protects your wallet.

 

The Ghost of 2022: Why the 3-Year Term Won (Last Time)

In mid-2022, the 3-year fixed mortgage became a superstar. Rates were hitting 20-year highs, and homeowners were understandably terrified of locking in those peaks for five years. Even though 3-year rates were actually higher than 5-year options at the time, people took the gamble, betting that rates would drop by 2025/2026… which is exactly what was expected to happen. 

That gamble paid off. 

Fixed rates have dropped significantly since the October 2022 peak. But here is the danger: many homeowners are choosing a 3-year term again simply because it worked last time.

But 2026 is not 2022. 

We are currently in a downward rate trend, but signs suggest we are nearing or have already hit the floor. If you’re waiting for 2% rates to return, you might be waiting a long time. In fact, most of the Big Six banks forecast that the Bank of Canada will begin increasing rates by early 2027.

 

The Lowest 3 & 5 Year Fixed Mortgage Rates 

The “script” has flipped. Three years ago, you paid a premium for a shorter term. Today, in many cases, 3-year rates are actually lower than 5-year rates. But it all comes down to what rate category you fall into.

The lowest rates are generally found on insured purchases. That is, you’re purchasing a new property with a down payment less than 20%.  

The lowest insured rates: 

3 year fixed: 3.59%

5 year fixed: 3.59% 

On uninsured mortgages, rates can vary based on a number of factors. Purchase price (or original purchase price, closing date (or original closing date), down payment percentage / equity in the home, amortization, province, usage of property, etc. 

The lowest uninsured rates range: 

3 year fixed: 3.79% to 3.89%

5 year fixed: 3.59% to 4.04% 

As you can see, there is a much wider range with 5 year terms. 

 

When to Choose the 3-Year Fixed

A 3-year term is essentially a “flexibility play.” It is often the right move if:

  • You’re a First-Time Buyer: Statistics show the majority of first-time buyers break their mortgage around the 3-year mark. Life moves fast when you’re starting out.
  • You Might Move: If you plan on selling within the next 36 months, a shorter term avoids the mortgage porting headache or potentially larger penalties for breaking your contract early. 
  • Penalty Protection: Fixed-rate penalties, usually the higher of three months interest or the Interest Rate Differential (IRD) can be lower on shorter terms. If your life is in a state of flux, the 3-year term gives you added protection. 

The Risk: You are fully exposed to whatever the market looks like in 2029. If rates have climbed back up by then, your “savings” may evaporate. 

 

The “Hidden” Math: Why the 5-Year Might Be Cheaper

Let’s look at a scenario where you take a slightly higher rate now (5-year) to protect against a future hike.

The Scenario: You have an $800,000 mortgage and are looking for a 25 year amortization with two options: 

 

Option A: 

Product: 3-Year Fixed at 3.79%

Monthly payment: $4,117.59

Balance at end of three years: $738,721.08

 

Option B: 

Product: 5-Year Fixed at 3.99%

Monthly payment: $4,203.83 

Balance at end of three years: $740,257.95

At the end of three years, Option A has saved you roughly $4,641, which includes not just the difference in payments, but the difference in balance at the end of your term. 

However, the 3-year term will need to be renewed in 2029 when rates are expected to be higher than they are today. The exact rates in three years are unknown of course, so this is all speculation. But let’s say the lowest option is 4.79% at the time. 

New payment after 3 years: $4,512.49 

Payment increase from the original 5 year fixed option: $308.66

Balance after 2 years (to match the 5 year comparison term): $698,705.83

The difference in payments for the remaining two years total $7,407.84 and the difference in ending balance at the end of the original 5-year term works out to $2,396.15. This totals $9,803.99. In other words, if you chose the 5 year fixed rate at 3.99% initially, you would be $9,803.99 ahead compared with the original 3 year fixed at 3.79% and then renewing after 3 years into a rate of 4.79%. 

Remember, this is all speculation as the future is uncertain. 

 

The Uncertainty Factor (The “Trump” Effect)

Forecasts are just educated guesses. In 2020, nobody predicted a global pandemic which sent mortgage rates plummeting to all-time record lows.

In 2022, it was the Russian invasion of Ukraine that sent inflation (and rates) through the roof.

Uncertainty is always present. 

Today, with the current U.S. administration and ongoing global trade shifts, the risk of economic “shocks” remains high. This uncertainty usually favors the 5-year fixed, which is essentially an insurance policy against chaos.

 

How to Choose Between a 3 or 5-Year Fixed Mortgage

Choose the 3-Year if: You prioritize flexibility, plan to move soon, or are a first-time buyer who wants an “out” in case life changes. Most first time buyers break their mortgage contract within the first three years. 

Choose the 5-Year if: You value budget stability, plan to stay in your home for at least the next 5 years and want to hedge against the Bank of Canada hiking rates in 2027 and beyond.

 

Frequently Asked Questions 

Should I choose a 3-year or 5-year fixed mortgage in 2026?

The choice depends on your long-term goal. A 3-year fixed rate is better if you value flexibility, plan to move soon, or believe rates will drop further by 2029. A 5-year fixed rate is better for budget stability and protection against the forecasted Bank of Canada rate hikes expected in 2027 and beyond.

 

Are 3-year mortgage rates lower than 5-year rates right now?

In the current 2026 market, 3-year fixed rates are often (but not always) slightly lower than 5-year rates, typically ranging between 3.59% and 3.89%. Five-year rates are currently hovering between 3.59% and 3.99%. However, this “discount” on the shorter term should be weighed against the risk of renewing at a higher rate in three years.

 

What is the Bank of Canada interest rate forecast for 2026 and 2027?

As of early 2026, the Bank of Canada has held its policy rate steady at 2.25%. Most major Canadian banks (The Big Six) forecast that rates will remain stable through most of 2026, with a gradual upward trend starting in early 2027 to manage persistent inflation and economic growth.

 

What is the best term length for a first time homebuyer?

It’s suggested for first-time buyers to choose a 3-year term because they are more likely to “break” their mortgage due to life changes like marital, starting a family, or job relocation. A 3-year term offers a shorter commitment and could potentially result in lower prepayment penalties compared to a 5-year term if the contract is broken early.

 

Will mortgage rates go back down to 2%?

While market trends are currently stable, economists do not expect mortgage rates to return to the pandemic-era lows of 2% in the foreseeable future. 

 

Is it better to port a mortgage or take a shorter term?

Porting a mortgage allows you to move your current rate to a new property, but it isn’t always the most cost-effective option, especially if you need to increase your loan amount at a higher current market rate. If you plan to move within 3 years, choosing a 3-year fixed term from the start is generally safer and more flexible than trying to port a 5-year term later.

 

Final Thoughts 

The future is uncertain and that’s something I think we can all agree on. As I say in my book, there is no one size fits all mortgage advice as everyone’s situation can be a bit different. While a 3-year fixed rate might be right for one person, a 5- year fixed might be a better choice for the next. 

While it looks like rates will be higher in three years, it’s still just a forecast, and forecasts are always changing. Anything can happen in the mortgage rate world.Â