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.<\/p>\n
That uncertainty cuts both ways \u2014 some analysts expect modest hikes in late 2026 and 2027 as inflation from elevated oil prices and geopolitical disruption feeds through \u2014 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.<\/p>\n
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 \u2014 because of a sale, a divorce, a job relocation or a financial restructuring \u2014 increases with term length.<\/p>\n
A borrower who signed a five-year fixed in 2021 and needed to sell in 2023 will not soon forget what that cost.\u00a0Canadian Mortgage Professional has reported<\/a>\u00a0that OSFI’s regulatory focus on loan-to-income limits and debt service ratios has also sharpened borrower awareness of their financial flexibility \u2014 making the lower-penalty, shorter-term option more attractive than it was when penalty calculation was an abstraction.<\/p>\n The CMHC data adds context<\/p>\n