The second is the rate outlook. After the Bank of Canada cut rates from 5.0% to 2.25% between June 2024 and early 2026, the policy cycle appears to have paused. The Bank’s Governor Tiff Macklem has described current rates as “about the right level,” and most private-sector forecasters expect the overnight rate to hold through the middle of the year before the path becomes uncertain.
That uncertainty cuts both ways — some analysts expect modest hikes in late 2026 and 2027 as inflation from elevated oil prices and geopolitical disruption feeds through — but the dominant instinct among borrowers appears to be a preference for optionality over lock-in. A three-to-five-year term that expires in 2028 or 2029, when the rate environment may be clearer, is more attractive to many borrowers than a five-year commitment that extends into 2031, when nobody can say with confidence where rates will be.
The third factor is penalty awareness. The Interest Rate Differential penalty on a broken five-year fixed mortgage can run to five figures on a large mortgage. Three-year and shorter-term fixed mortgages carry the same penalty structure, but the probability of needing to break — because of a sale, a divorce, a job relocation or a financial restructuring — increases with term length.
A borrower who signed a five-year fixed in 2021 and needed to sell in 2023 will not soon forget what that cost. Canadian Mortgage Professional has reported that OSFI’s regulatory focus on loan-to-income limits and debt service ratios has also sharpened borrower awareness of their financial flexibility — making the lower-penalty, shorter-term option more attractive than it was when penalty calculation was an abstraction.
The CMHC data adds context
Statistics Canada’s findings are consistent with — and deepen — what CMHC reported in its spring 2026 Mortgage Industry Report. As Canadian Mortgage Professional reported in May, shorter-term mortgages between three and five years made up 32% of new mortgages as borrowers adopted a wait-and-see approach in anticipation of possible rate movements. Variable-rate mortgages accounted for 42% of extended mortgages at chartered banks by February 2026, CMHC said, reflecting the same preference for optionality that is now showing up in the fixed-rate term mix data.