The 1-year fixed mortgage is the shortest closed fixed-rate term offered by most Canadian lenders. It gives you 12 months of predictable payments, then rolls into a renewal. For borrowers with strong conviction that rates will be significantly lower in one year, or those with major life changes coming up, the 1-year term offers maximum short-term flexibility within the fixed-rate world.
Indicative rates only. Your actual rate depends on lender, credit profile, and loan-to-value.
What Is a 1-Year Fixed Mortgage?
A 1-year fixed mortgage locks your interest rate for exactly 12 months. After that, you negotiate a new rate and term. The mortgage balance continues to amortize over the original 25- or 30-year schedule, but the rate resets annually if you keep choosing 1-year terms.
Very few Canadian borrowers choose 1-year fixed terms in normal market conditions — they typically represent less than 5% of originations. But in specific rate environments or personal circumstances, they can be the smartest choice on the table.
When a 1-Year Fixed Makes Sense
- Imminent sale: You're planning to sell your home within 12-18 months. A 1-year term means you hit renewal right around when you need the flexibility, with no penalty for not renewing.
- Rate conviction: You believe strongly that rates will be materially lower in 12 months and are willing to pay a higher rate today for the option to capture that decline at renewal.
- Divorce or estate situation: Relationship changes or estate settlement may require selling or restructuring within a year — a 1-year term limits long-term commitment.
- Bridge to a specific product: Waiting for a variable rate to become more attractive, or for a longer-term fixed rate to drop below a certain threshold.
1-Year Fixed vs. Variable: The Key Comparison
Borrowers considering a 1-year fixed often also look at variable-rate mortgages. The key differences:
| Feature | 1-Year Fixed | Variable Rate |
|---|---|---|
| Rate during term | Locked — no change | Moves with prime rate |
| Payment stability | Fully stable | Varies (adjustable) or stable with floating amortization |
| Penalty to break | 3 months interest (small) | 3 months interest (small) |
| Captures rate cuts mid-term | No — must wait for renewal | Yes — immediately |
| Rate level | Usually higher than variable | Usually lower at entry |
If rates are actively falling, a variable rate typically outperforms a 1-year fixed because cuts are captured immediately rather than at the next renewal. The 1-year fixed is best when you want certainty for exactly 12 months but have no interest in rate changes during that window.
Pros and Cons of a 1-Year Fixed
Pros
- Stable payments for 12 months
- Renew annually — maximum flexibility
- Tiny penalty if you need to break mid-term
- Great for planned life changes within the year
- Can switch lenders every 12 months without penalty at maturity
Cons
- Highest rate of all fixed terms — you pay for flexibility
- Annual renewals require active management
- Rate risk every 12 months — could renew into higher rates
- Doesn't capture mid-term rate cuts like variable does
- Less lender competition at 1-year term
Breaking a 1-Year Fixed Mortgage
The prepayment penalty on a 1-year fixed is typically 3 months' interest on the outstanding balance. The IRD penalty (usually the larger calculation for longer-term mortgages) is generally minimal or even less than 3 months' interest on a very short remaining term. This makes 1-year fixed mortgages among the cheapest to break in Canada.
Example: On a $500,000 mortgage at 5.14%, 3 months' interest = approximately $6,425. Compare this to breaking a 5-year fixed in year 2, where IRD penalties can run $15,000-$30,000+.
Who Offers 1-Year Fixed Mortgages in Canada?
All major banks and most credit unions offer 1-year fixed terms, but competitive rates are harder to find than for 5-year terms. Some monoline lenders and digital lenders offer 1-year terms through the broker channel. Because lenders make less profit on short-term relationships, they may not aggressively discount 1-year rates.
Tips for getting the best 1-year fixed rate:
- Use an independent mortgage broker — they aggregate rates from multiple sources
- Ask explicitly about 1-year insured vs. uninsured rates
- Confirm prepayment privileges (typically 10-20% annually)
- Check portability provisions even on short terms
Rate Math: Is a 1-Year Fixed Worth It?
Suppose 5-year fixed rates are 4.59% and 1-year fixed rates are 5.14%. Over 5 years of choosing 1-year terms, you would need your average renewal rate across years 2-5 to be below 4.44% for the 1-year strategy to break even. If rates fall to 3.5-4.0% by year 2 and stay there, the 1-year approach wins decisively. If rates stay flat or rise, the 5-year wins.
This math exercise is worth running with actual current rates before committing to a 1-year term.
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Get KOHO Free — Use Code BREMO2026Frequently Asked Questions
It can be if you have strong evidence rates will fall significantly. However, a variable-rate mortgage often captures rate cuts more efficiently. Work with a broker to compare both options for your specific situation.
Absolutely. At renewal you have full freedom to choose any term — 1-year, 2-year, 3-year, 5-year fixed, or variable. You can also switch lenders completely at renewal with no penalty.
You qualify at the greater of 5.25% or your contract rate + 2%. A 1-year fixed at 5.14% means you qualify at 7.14% — which is tougher than qualifying at a 4.59% 5-year fixed (which qualifies at 6.59%). Short terms can reduce your buying power.
Switching at maturity (not before) costs nothing in penalties. There may be a small discharge fee from your current lender ($200-$350) and legal/admin fees at the new lender, which they often absorb to win the business.