Choosing between a 3-year and a 5-year fixed term is a trade between certainty and flexibility. A 5-year term fixes your rate and payment for longer; a 3-year term brings renewal sooner, which helps if rates have fallen by then and hurts if they have risen. The term also sets how long you are exposed to a prepayment penalty if you sell, move or refinance early. Because the rates on the two terms are often close, those other factors usually matter more than the rate itself. This comparison is part of our mortgage types hub; for how the term differs from the amortization, see mortgage term vs amortization.
Rates on 3-year and 5-year terms
The gap between 3-year and 5-year fixed rates changes with the bond market, and either term can be the cheaper one at a given time. Compare current offers on our mortgage rates page or the best 5-year fixed rates before deciding.
Side-by-side comparison
| Feature | 3-year term | 5-year term |
|---|---|---|
| Rate locked for | 3 years | 5 years |
| Renewals over a 25-year amortization | More frequent | Less frequent |
| Penalty exposure if broken | Shorter (less time left to run) | Longer |
| Rate risk | Exposed to rate changes sooner | Protected for longer |
| Flexibility | Earlier chance to change lender, term or rate type | Fewer decision points |
How each term plays out
These hypothetical scenarios start a 3-year term at 4.50% and a 5-year term at 4.40%, and ask what happens over the full five years.
| Scenario | 3-year: years 4 to 5 | 5-year: years 4 to 5 | Which came out ahead |
|---|---|---|---|
| Rates stay flat | Renews at 4.50% | Still 4.40% | 5-year, by its lower starting rate |
| Rates rise 1 point | Renews at 5.50% | Still 4.40% | 5-year, by a wide margin |
| Rates fall 1 point | Renews at 3.50% | Still 4.40% | 3-year, for the last two years |
The 3-year term wins when rates fall before its renewal; the 5-year term wins when they rise or stay put. Nobody knows in advance which will happen, so the decision is really about how much rate risk you are willing to carry.
Breaking the mortgage early
The term matters most if you might break the mortgage. On a closed fixed-rate mortgage the penalty usually depends on the time left in the term, so a longer term means more potential exposure. Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty.
Illustration (simplified). A $500,000 balance at 4.5%, broken two years in, with a gap of 1% between the contract rate and the lender’s comparison rate:
| 3-year term, broken at year 2 | 5-year term, broken at year 2 | |
|---|---|---|
| Time left in the term | 1 year | 3 years |
| Rough interest rate differential (balance x rate gap x years left) | $5,000 | $15,000 |
| Three months’ interest | $5,625 | $5,625 |
| Penalty (the higher of the two) | $5,625 | $15,000 |
Real IRD calculations depend on the lender’s posted rates and the discount you received, and can be larger; the mortgage penalty guide shows how lenders calculate them. Because the penalty on a variable rate is usually the smaller of the two, people who expect to move often weigh the fixed vs variable choice alongside the term.
| If you might… | Penalty impact |
|---|---|
| Sell the home in 3 to 4 years | A 3-year term may have ended by then |
| Relocate for work | Less time left on a 3-year term means less exposure |
| Refinance to access equity | A shorter term leaves less time for an IRD to build up |
| Stay put for 5 years or more | The penalty is less likely to matter |
Who each term tends to suit
| A 3-year term tends to suit | A 5-year term tends to suit |
|---|---|
| Borrowers who expect rates to fall | Borrowers who want the same payment for longer |
| Those who may move or refinance within five years | Those who plan to stay at least five years |
| People comfortable revisiting the mortgage more often | People who prefer fewer renewal decisions |
| Budgets that could absorb a higher payment at renewal | Tight budgets that need predictable payments |
Other approaches
- Renewing in steps. Take a 3-year term, then decide at renewal whether a 2-year or 3-year term makes sense next.
- Splitting the mortgage. Some lenders let you put part of the balance on a 5-year term and part on a 3-year term (or variable), which spreads the rate risk. Splitting can make switching lenders at renewal harder, because the portions mature on different dates.
Other fixed terms
| Term | Points to weigh |
|---|---|
| 1 or 2 years | Frequent renewals and the least penalty exposure; payments can change sooner |
| 4 years | A middle ground; fewer lenders compete on it |
| 7 or 10 years | The longest certainty and the most penalty exposure, capped once five years have passed by the Interest Act (below) |
For a term of more than five years, a federal limit applies: Under section 10 of the Interest Act, a mortgage that isn't due until more than 5 years after its date can be paid off at any time after those 5 years with no more than 3 months' further interest; this doesn't apply to a mortgage given by a company or other corporation.
Every term ends in a renewal; the mortgage renewal guide covers what to compare when it comes.
Related resources
Sources
The figures and rules on this page come from these sources, last checked against them on September 29, 2026. How we check facts.
- Financial Consumer Agency of Canada: Breaking your mortgage contract
- Financial Consumer Agency of Canada: Mortgage fees: Prepayment penalties
- Justice Laws (Canada): Interest Act
- RBC: Variable Rate Mortgage | RBC Royal Bank of Canada