Canada Mortgage Rates: Should You Fix, Refinance, or Invest Instead?

With mortgage rates ranking 20/100, Canadians are grappling with the decision to fix, refinance, or invest their money elsewhere. For many, the allure of locking in a low rate is irresistible, but is it the best choice for your financial goals? In this article, we'll explore the ins and outs of fixed and variable-rate mortgages, overpayments, and investing through various tax-advantaged accounts.

Mortgage Rates in Canada: A Brief Overview

As of this writing, the average 5-year fixed mortgage rate in Canada is around 4.5%, while the 5-year variable rate is approximately 3.5% [1]. While these rates may seem attractive, it's essential to consider the broader financial landscape and how your money could be working harder for you elsewhere.

Fixed-Rate Mortgages: Pros and Cons

A fixed-rate mortgage offers predictability and stability, as your monthly payments remain the same for the entire term. This can be beneficial for those who value certainty and don't mind paying a premium for it.

Type	Current Rate	Lock-in Period	Pros	Cons
Fixed	4.5%	5 years	Predictable payments, stability	Higher interest rates, potential for missed opportunities
Variable	3.5%	Varies	Lower interest rates, flexibility	Payments can increase with interest rate fluctuations

However, fixed-rate mortgages often come with higher interest rates, which may leave you paying more in interest over the life of the loan. Additionally, if interest rates drop significantly, you may miss out on the opportunity to refinance and secure a lower rate.

Variable-Rate Mortgages: Pros and Cons

A variable-rate mortgage, on the other hand, offers flexibility and the potential for lower interest rates. However, payments can increase if interest rates rise, which may put a strain on your budget.

Type	Current Rate	Lock-in Period	Pros	Cons
Fixed	4.5%	5 years	Predictable payments, stability	Higher interest rates, potential for missed opportunities
Variable	3.5%	Varies	Lower interest rates, flexibility	Payments can increase with interest rate fluctuations

Overpayments: A Viable Alternative?

Instead of fixing or refinancing, you could consider making overpayments on your mortgage. This involves paying more than the minimum payment each month, which can help reduce the principal balance and save on interest.

Suppose you have a $500,000 mortgage with a 20-year amortization period and an interest rate of 4%. By making an additional $500 per month, you can shave off 5 years and save approximately $23,000 in interest.

Scenario	Monthly Payment	Interest Saved
Original	$2,433.41	-
Overpayment	$2,933.41	$23,000

Investing Through Tax-Advantaged Accounts

Investing through tax-advantaged accounts like TFSAs, RRSPs, FHSAs, and RESPs may offer a more attractive alternative to overpayments. These accounts provide a tax-free or tax-deferred environment for your investments to grow.

Account	Contribution Limit (2025)	Tax Benefits
TFSA	$7,000/year	Tax-free growth and withdrawals
RRSP	18% of earned income (up to $29,000)	Deductible contributions, tax-deferred growth
FHSA	$8,000/year (first-time homebuyer)	$40,000 lifetime contribution limit, tax-free growth
RESP	CESG grant 20% on first $2,500	Tax-free growth, withdrawals

For example, investing $500 per month in a TFSA with a 5% annual return can grow to approximately $143,000 in 20 years, assuming no withdrawals.

Scenario	Monthly Contribution	Total Value (20 years)
Investment	$500	$143,000

Frequently Asked Questions

How much should I save each month in Canada to take advantage of low mortgage rates?

You should consider saving at least 20% of your income towards your down payment and closing costs. Additionally, aim to make extra mortgage payments, such as overpayments, to reduce your principal balance and save on interest.

What are the benefits of investing through a TFSA in Canada?

Investing through a TFSA provides tax-free growth and withdrawals, allowing your money to grow faster and more efficiently. You can contribute up to $7,000 per year, and the funds can be used for any purpose.

Can I use my RRSP to invest in a mortgage?

No, RRSPs are designed for retirement savings, and you cannot use them to invest in a mortgage. However, you can consider investing in a tax-free savings account (TFSA) or a registered education savings plan (RESP) for other financial goals.

Summary

Canada's mortgage rates may seem attractive, but it's essential to consider the broader financial landscape and how your money could be working harder for you elsewhere. While fixed and variable-rate mortgages have their pros and cons, overpayments and investing through tax-advantaged accounts like TFSAs, RRSPs, FHSAs, and RESPs may offer a more attractive alternative. By making informed decisions and considering your financial goals, you can make the most of your money and achieve financial stability.

[1] Source: Bank of Canada, as of March 2025.

Note: This article provides general information and should not be considered personalized investment advice. It's essential to consult with a financial advisor or tax professional to determine the best course of action for your individual circumstances.