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.
       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.
       Amortization The amortization period is the length of time it takes to pay off your mortgage in its entirety. The most common amortization period is 25 years, with the maximum set at 30 years for down payments less than 20%. Although longer amortization periods reduce your monthly payments, you will pay more interest over the life of your mortgage.

5-Year Variable Mortgage Rates

Mortgage rate
       Mortgage rate The rate of interest you will pay on the outstanding balance of your mortgage. This rate can be fixed for the duration of the term or variable, fluctuating with the prime rate. Fixed rates are most popular in Canada and represent 66% of all mortgages.
Provider
       Provider Mortgage providers include lenders and mortgage brokers. As the name suggests, lenders provide the funding for your mortgage. Mortgage brokers are licensed professionals with access to multiple lenders and products. According to the Canadian Mortgage and Housing Corporation, mortgage brokers accounted for 38% of mortgage originations in 2009.
Rate hold
       Rate hold The rate hold is the time period, between 30-120 days, before your mortgage renewal date you are able to lock in the current mortgage rate. If rates go down further within this period, however, many lenders will honour the lower rate.
Prepayment
       Prepayment Prepayment options outline the flexibility you have to increase your monthly mortgage payments or make a lump sum outlay against your mortgage as a whole. According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), 28% of mortgage holders used one or both prepayment privileges in 2010.
Payment
       Payment The monthly mortgage payment is calculated based on the mortgage amount, amortization period and the associated mortgage rate. A general affordability rule is that your monthly housing costs should not exceed 32% of your gross household monthly income.
2.17%
Prime - 0.83
Butler Mortgage
Butler Mortgage
60 days Lump Sum: 15%
Monthly: 15%
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2.40%
Prime - 0.60
Laurentian
Laurentian
90 days Lump Sum: 15%
Monthly: 15%
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2.55%
Prime - 0.45
HSBC
HSBC
90 days Lump Sum: 20%
Monthly: 20%
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2.60%
Prime - 0.40
Scotiabank
Scotiabank
60 days Lump Sum: 15%
Monthly: 15%
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2.75%
Prime - 0.25
PC Financial
PC Financial
120 days Lump Sum: 20%
Monthly: 25%
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3.00%
Prime - 0.00
National Bank
National Bank
90 days Lump Sum: 10%
Monthly: 100%
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3.00%
Prime - 0.00
RBC Royal Bank
RBC Royal Bank
120 days Lump Sum: 10%
Monthly: 100%
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3.00%
Prime - 0.00
Bank of Montreal
Bank of Montreal
90 days Lump Sum: 20%
Monthly: 20%
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3.00%
Prime - 0.00
Tangerine
Tangerine
30 days Lump Sum: 25%
Monthly: 25%
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3.00%
Prime - 0.00
CIBC
CIBC
90 days Lump Sum: 20%
Monthly: 100%
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3.00%
Prime - 0.00
The Mortgage Emporium
The Mortgage Emporium
90 days Lump Sum: 20%
Monthly: 20%
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3.00%
Prime - 0.00
TD Bank
TD Bank
120 days Lump Sum: 15%
Monthly: 100%
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Historical Prime Lending Rate (1935 - 2010)
Source: Bank of Canada, Prime rate

  • 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

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

Mortgages by type and age group

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%
Source: CAAMP "Annual state of the Residential Mortgage Market in Canada" 2010

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.

Comparing 5-year variable mortgage rates

A variable interest rate has historically proven to be lower over time, as you are not paying for the protection against interest rate uncertainty; however, it is exactly that, uncertain. If you expect interest rates to fall further with some certainty, then a variable rate is preferred as you will be able to absorb the benefit of paying lower interest. Similarly, if the difference between variable rate and the fixed rate is significant, it may not be worth it to buy the stability protection of the fixed rate.

On the other hand, as variable rates fluctuate with the prime lending rate, significant increases in the prime rate will increase your interest payable and, thus, financial burden. Most people are averse to the risk of interest rate fluctuations and the possibility of changes in their mortgage payments, which is why fixed rates tend to be more popular.

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 (2006 - 2010)
Source: RateHub.ca averaged data from competitive mortgage brokers

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.

Source: All data percentages were taken from CAAMP "Annual State of the Residential Mortgage Market in Canada" 2010