Should You Renew Into a 1-Year Term or Lock for 5 Years in 2025?
Mortgage renewal decisions in 2025 are more complex than ever. With interest rates holding steady but inflation and market uncertainty still in play, choosing between a short 1-year term or a stable 5-year fixed rate has big implications. This blog breaks down the benefits, risks, and ideal scenarios for both options to help you make the most financially sound choice this renewal season.
Comparing the 1-Year vs 5-Year Mortgage Renewal Options
Both the 1-year and 5-year terms offer unique advantages depending on your goals, financial outlook, and expectations for the Canadian housing market.
| Feature | 1-Year Term | 5-Year Term |
| Rate Type | Usually fixed or variable | Fixed |
| Current Rates (2025) | Lower than 5-year fixed | Higher but stable |
| Flexibility | High – easier to change lenders | Low – locked in for longer |
| Risk Exposure | High – rate may increase next year | Low – stable payments |
| Best For | Rate watchers, short-term movers | Budgeters, long-term stability seekers |
Who Should Consider a 1-Year Mortgage Term?
A 1-year renewal term can make sense for homeowners who want flexibility or expect interest rates to decrease soon.
You’re Planning to Move or Sell Soon
If you’re not staying in your current home beyond the next 12 to 18 months, a 1-year term gives you flexibility without early exit penalties.
You Expect Rates to Drop
If you’re confident the Bank of Canada will lower rates in the coming year, locking into a short term allows you to renew into a better deal soon.
You Want to Refinance Soon
Some homeowners anticipate a credit score improvement or an income boost. A 1-year term lets you reassess and renegotiate under better conditions sooner.
Who Should Consider Locking into a 5-Year Term in 2025?
If predictability and peace of mind are your top priorities, a 5-year fixed rate is the safer option in 2025.
You Prefer Stable Payments
With a 5-year fixed rate, your mortgage payment won’t change for five years. This helps with long-term budgeting and financial planning.
You Believe Rates May Rise Again
Many experts say we’re near the bottom of the current rate cycle. If you think rates might edge up again in the next few years, locking in now protects you.
You Don’t Plan to Move or Refinance
If you’re staying in your current home and don’t anticipate major life changes, a 5-year term keeps things simple and secure.
Additional Factors to Consider Before Choosing
Before deciding, consider more than just the rate:
- Prepayment Privileges: Can you make lump-sum payments without penalties?
- Portability: Can you take your mortgage with you if you move?
- Break Penalties: Know the cost if you need to end the term early.
- Your Risk Tolerance: Are you comfortable with the uncertainty of future rates?
A mortgage broker can help you review these fine details so you can make the most informed decision.
Conclusion
The right mortgage renewal term in 2025 depends on your financial goals, personal situation, and risk comfort. A 1-year term can offer flexibility and a chance at lower rates, while a 5-year term delivers long-term stability and predictable payments. Either way, reviewing your renewal strategy now ensures you don’t leave money on the table.Want expert advice tailored to your situation? Mortgages365 is here to help. Book your free consultation today and renew with confidence.
