Renewal Rates, Costs and 2026 Rules
Choosing a mortgage term at renewal: 1, 3, 5 or 10 years?
How to pick a mortgage term length at renewal in Canada, with a worked three-year versus five-year comparison, the break-even rate, open terms and the Interest Act rule.
Pick the renewal term that matches how long you are confident nothing will force you to break the mortgage, then compare the rates for that term. A five-year fixed term is the most common choice in Canada and suits households that want stability. A shorter term (one to three years) makes sense if you expect to sell, receive a large sum, or want to renew again soon, and it can be cheaper when shorter rates are lower. A ten-year term buys long certainty at a usually higher rate, with a special penalty limit after year five under the Interest Act. Open terms are for short gaps, not long holding.
This guide is part of the mortgage renewal rates overview. Rates are illustrative examples.
The term options at a glance
| Term | Typical use | Main trade-off |
|---|---|---|
| Open (often 6 months or 1 year) | Selling soon, expecting a large lump sum, bridging to a switch | Usually a higher rate; no penalty to pay off |
| 1 or 2 year closed | Expecting to sell or restructure soon, or betting rates will fall | Renew again quickly; more exposure to rate changes |
| 3 year closed | Medium certainty, possible life change within five years | Another renewal before the five-year mark |
| 5 year closed | Most households wanting stability | Fixed-rate penalty can be large if broken early |
| 7 or 10 year closed | Long certainty, low appetite for rate risk | Usually higher rate; fewer lenders compete; Interest Act limit after year 5 |
| Convertible (often 6 months or 1 year) | Waiting to lock a longer fixed term | Rate usually above the best discounted rates |
Worked example: three-year or five-year fixed?
Illustrative figures: $400,000 balance at maturity, 20 years of amortization left, semi-annual compounding.
- Three-year fixed: 4.09%, payment $2,435.65
- Five-year fixed: 4.39%, payment $2,498.41
Over the first three years:
| Option | Interest paid in 3 years | Balance after 3 years |
|---|---|---|
| Three-year at 4.09% | $46,268.46 | $358,584.99 |
| Five-year at 4.39% | $49,708.96 | $359,766.33 |
The three-year term saves $3,440.50 of interest by year three and leaves a slightly lower balance. But after three years you renew again at an unknown rate, while the five-year borrower is locked for two more years.
Over five years the five-year option costs $79,784.15 of interest. For the three-year option to cost the same, the two-year renewal it needs in year four would have to be at about 4.90%. If the two-year rate you get at that renewal is below about 4.90%, the shorter term wins on these numbers; above it, the five-year wins.
The question becomes: how likely is it that two-year rates will be more than about half a point above today's five-year rate in three years' time? Nobody knows, but the break-even tells you what you are betting on.
Factors beyond the rate
How likely you are to break the mortgage
Breaking a closed fixed-rate term usually costs the greater of three months' interest or an interest rate differential. If there is a real chance you will sell, separate, move for work or refinance within five years, a shorter term or a variable rate can be cheaper even at a higher rate. Porting the mortgage to a new home can avoid a penalty, but it depends on the lender's conditions and on qualifying for the new purchase.
When your next renewal would fall
Look at the calendar. A term that ends during parental leave, a planned job change or a year when your income might fall can make the next renewal harder if you need to switch lenders. Some borrowers choose a term to avoid that date.
Prepayment plans
If you expect a large inheritance, bonus or sale of another property, check the prepayment privileges. A shorter term lets you pay a large lump sum at the next maturity without a penalty. See prepayment privileges at renewal.
Long terms and the Interest Act
Under section 10 of the Interest Act, when a mortgage term is longer than five years, an individual borrower (not a corporation) can repay the mortgage at any time after the fifth anniversary by paying no more than three months' interest as a penalty. This means a ten-year fixed term carries the usual larger penalty risk only in the first five years. After that, the cost of breaking falls to three months' interest. Check the exact wording in your contract and confirm with your lender how it applies.
Ten-year rates are usually higher than five-year rates, and you pay that premium for the whole term. Fewer lenders compete for them, so compare carefully.
Open and convertible terms
An open mortgage can be paid off in full or in part at any time with no penalty. It is useful if you have a confirmed sale closing in a few months or are waiting for a large sum. Every month in an open mortgage typically costs more interest than a closed term, so treat it as a short bridge.
A convertible term is a short closed term that you can convert to a longer fixed term with the same lender without a penalty. It can be useful if you want time to watch rates, but the conversion rate is usually the lender's rate on that day.
Decision checklist
- How many years are you confident you will keep this home and this mortgage?
- What is the penalty method on each term offered?
- What life events fall in the next five years?
- What is the break-even rate for a shorter term, using the method above?
- Can you afford a payment at least 2 percentage points higher at the next renewal?
- Do you plan a lump-sum payment that a shorter term would make penalty-free?
Test each option's payment in the renewal payment calculator, then compare full offers in the renew-vs-switch calculator.
Term length and rate type are linked decisions: read fixed vs variable at renewal alongside this guide, and what determines your renewal rate for why each term is priced differently.
Frequently asked questions
Is a five-year term always the safest choice?
It is the most common, and it gives five years of payment certainty, but it can be expensive to break. Safety depends on whether you will stay put.
Can I choose a different term from my original mortgage?
Yes. At each renewal you choose a new term. Your lender may offer only certain terms, and a new lender may offer others.
Do I need to qualify again for a longer term?
Not usually if you stay with your current lender and do not increase the balance or amortization. A switch or refinance means a new application.
Is a six-month convertible a good way to wait for lower rates?
It can be, but you pay a higher rate during the wait and you still face rate risk at the end. It works best when you have a clear plan and date to lock in.
Sources
- Justice Laws Website — the Interest Act, section 10, on mortgages with terms over five years
- Financial Consumer Agency of Canada — mortgage terms, open and closed mortgages, prepayment penalties
- Bank of Canada — bond yield and interest rate data
