5-Year Variable Mortgage Rates

Term The mortgage term is the amount of time a home buyer commits to the rules, conditions and interest rate agreed upon with the lender. The term can be anywhere from six months to 10 years, with a 5-year mortgage term being the most common duration. Mortgage Amount If you are a first-time homebuyer, the mortgage amount is the price of the home you intend to purchase, minus your down payment. If you are renewing or refinancing your mortgage, this is the value of your the mortgage.
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Term The mortgage term is the amount of time a home buyer commits to the rules, conditions and interest rate agreed upon with the lender. The term can be anywhere from six months to 10 years, with a 5-year mortgage term being the most common duration.
Term The mortgage term is the amount of time a home buyer commits to the rules, conditions and interest rate agreed upon with the lender. The term can be anywhere from six months to 10 years, with a 5-year mortgage term being the most common duration.
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Rate Provider Hold until Prepayment options Payment
2.40%
Prime - 0.60
Laurentian Jan 23 15 % Lump Sum 15 % Regular $ Get this rate
2.60%
Prime - 0.40
Scotiabank Dec 24 15 % Lump Sum 15 % Regular $ Get this rate
2.65%
Prime - 0.35
HSBC Jan 23 20 % Lump Sum 20 % Regular $ Get this rate
2.75%
Prime - 0.25
PC Financial Feb 22 20 % Lump Sum 25 % Regular $ Get this rate
3.00%
Prime - 0.00
National Bank Jan 23 10 % Lump Sum 100 % Regular $ Get this rate
3.00%
Prime - 0.00
TD Bank Feb 22 15 % Lump Sum 100 % Regular $ Get this rate
3.00%
Prime - 0.00
Bank of Montreal Jan 23 20 % Lump Sum 20 % Regular $ Get this rate
3.00%
Prime - 0.00
The Mortgage Emporium
Lic. 12068
Jan 23
No pre-approval
20 % Lump Sum 20 % Regular $ Get this rate
3.00%
Prime - 0.00
Tangerine Nov 24 25 % Lump Sum 25 % Regular $ Get this rate
3.00%
Prime - 0.00
CIBC Jan 23 20 % Lump Sum 100 % Regular $ Get this rate
3.00%
Prime - 0.00
RBC Royal Bank Feb 22 10 % Lump Sum 100 % Regular $ Get this rate
No pre-approval
Lump Sum N/A Regular N/A Get this rate

5-year Variable Mortgage Rates

  • Mortgage rate fluctuates with the market interest rate, known as the prime lending rate or simple prime rate
  • Typically stated as prime plus or minus a percentage
  • 66% of Canadians have 5-year mortgage terms
  • 5-year mortgage rates are driven by 5-year government bond yields

Historical Prime Lending Rates From 1935 - Today


5-year variable mortgage rate defined

A variable mortgage rate fluctuates with the market interest rate, known as the 'prime rate', and is usually stated as prime plus or minus a percentage amount. For example, a variable rate could be quoted as prime - 0.8%. So, when the prime rate is, say, 5%, you would pay 4.2% (5% - 0.8%) interest.

The term, which is five years in the case of a 5-year variable mortgage, is the length of time you are committed to a variable type rate and, sometimes, the mortgage payments. With a variable rate, your mortgage payments can be set up one of two ways: a set payment, with the interest portion fluctuating; or, a fixed sum applied to the principal with the fluctuating interest portion changing the overall mortgage payment. For example, in the case of the former, if interest rates go down, more of the mortgage payment is applied to reduce the principal, but the total outlay remains the same.

The term of the mortgage should not be confused with the amortization period, which is the amount of time it takes to pay off your mortgage. So, in the example above, if the principal is reduced more quickly when interest rates fall, then the amortization period is reduced as well.


Popularity of 5-year variable mortgage rates

Although fixed rate mortgages are more popular (66%), 29% of mortgages, a significant minority, have variable and adjustable rates. Fixed rates are also slightly more common for the youngest age groups, while older age groups are more likely to opt for variable rates.

The 5-year term, conversely, is the most common duration. This is logical given that five years is the median between the available term lengths between one and ten years.

Mortgages by type and age group1
Mortgage Type Age Group
18-34 35-54 55+ All Ages
Fixed rate mortgage 69% 64% 67% 66%
Variable or adjusted rate mortgage 27% 32% 30% 29%
Combination 4% 4% 3% 4%

Comparing 5-year variable mortgage rates

Variable mortgage rates expose you to changes in interest rates and, thus, in your mortgage payments. If market rates fluctuate, you will be charged the difference in interest applied to your mortgage principal. Further, if your mortgage payments are structured so you pay a fixed amount every month – with rate changes altering the interest and principal portions – then your mortgage payment schedule may also be affected.

On the other hand, variable mortgage rates have proven to be less expensive compared to fixed rates when examined historically, and they particularly make sense in falling interest rate environments.

The 3-year term is sensible if you foresee breaking your mortgage within a few years – like, if you were to upgrade your home, for instance. Opting for a 3-year term over, say, a 5-year term could save you a considerable amount in penalty costs.

Another point to consider is a variable rate’s relationship to prime: if you believe discounts to prime will become more favourable in the short-term, committing to a 3-year over a 5-year mortgage rate is also a sound strategy.


What drives changes in 5-year variable mortgage rates?

As previously mentioned, the 5-year variable mortgage rate will fluctuate with any movements in the prime lending rate, which is the rate at which banks lend to their best and most credit-worthy customers. The variable mortgage rate is typically stated as prime plus/minus a percentage discount/premium.

Historical Adjustment to Prime Rate From 2006 - Today

Canada's prime rate is influenced primarily by economic conditions. The Bank of Canada adjusts it depending on the state of the economy, determined by various factors in employment, manufacturing and exports. Together, these shape the inflation rate. When inflation is high, the Bank of Canada must act to avert an over-stimulated economy. They will increase the prime rate to make the act of borrowing money more expensive.

Conversely, in cases where inflation is low, the Bank of Canada will decrease the prime rate to stimulate the economy and improve the attractiveness of borrowing. The discount/premium on the prime rate applied to the variable mortgage rate is set by the banks, based on their competition, strategy, and desired market share.


Current Mortgage Rates


References and Notes

  1. Annual state of the Residential Mortgage Market in Canada, CAAMP, 2010