Best 5-year variable open mortgage rates
What are 5-year variable mortgage rates?
The '5' in a 5-year mortgage rate represents the term of the mortgage, not to be confused with the amortization period. The term is the length of time you agree to a particular mortgage, while the amortization period is the total amount of time it will take you to pay off your mortgage. The term acts like a reset button on your mortgage, at which point you must renew the mortgage at a rate available at the end of the term. So, for example, a typical mortgage has a 5-year term and a 25-year amortization period.
When the mortgage rate is 'variable' it means that the rate (%) fluctuates with the market interest rate, known as the 'prime rate'. This is different to a fixed rate, which is set for the duration of the term. A variable rate is determined by its relationship to prime.
For example, if your 5-year variable mortgage rate is Prime + 1% and the current prime rate is 3%, then your current interest rate will be 4%.
Why are fixed rates different to variable rates?
You can think of the difference, or spread, between variable mortgage rates and fixed rates as the price of insurance that mortgage costs will not increase in the next five years, more or less. The advantage of fixed rate mortgages is that you know exactly how much your mortgage payments will be regardless of whether rates rise or fall. You can, essentially, set it and forget it. This eases the budgeting anxiety that may follow a variable rate mortgage.
When interest rates are low, and the spread between shorter-term rates and the 5-year fixed mortgage rates is less significant, it is typically recommended that you lock in the 5-year rate. The longer term offers stability and, because rates are historically low, the chances of rates decreasing further with a variable rate are greatly reduced.
On the other hand, as is the case with all fixed mortgage rates, there is the potential to pay higher interest when variable rates are low, and, examined historically, variable rates have proven to be less expensive over time.
What are open mortgages?
An open mortgage gives you a lot of flexibility to increase your mortgage payments, either as a lump sum or by increasing your regular payments. This lets you pay down your mortgage faster, or pay the whole thing off quickly. You might use this feature if you sold your home or received a large sum of money, such as from an inheritance.
The opposite of an open mortgage is a closed mortgage. Closed mortgages limit the amount by which you can increase your payments, and will charge you penalties if you choose to do so. While there's less flexibility in closed mortgages, you will pay a lower rate on a closed mortgage than an open mortgage.
Open mortgages are less common than closed mortgages in Canada. This is because open mortgages come with higher rates, which are only worth paying in specific, and reasonably uncommon, situations.
How much can I save comparing 5-year variable rates?
Your mortgage is likely to be the largest financial commitment you’ll ever make, and getting a better rate can save you thousands over a 5-year term. Even a slightly lower mortgage rate can result in big savings, especially early on in your mortgage.
For example, on a $500,000 mortgage with a 25-year amortization period, a rate of 3.00% would see you pay $69,347 interest over 5 years. With a 2.75% rate, you’d pay $63,454 interest over the term. So, a difference of just 0.25% can save you $5,893 over your 5-year term.
Comparing rates between multiple lenders is the best way to secure the lowest rate you're able to qualify for.
Why compare 5-year variable rates with Ratehub.ca?
We make it simple to see current mortgage rates from all of Canada’s leading mortgage providers in one place. We have rates from the big banks, smaller lenders, as well as mortgage brokers across the country. This makes it easy to see who offers the best rates in Canada in real time, at no cost to you.
Compare current mortgage rates across the Big 5 Banks and top Canadian lenders. Take 2 minutes to answer a few questions and discover the lowest rates available to you.
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Jamie David, Sr. Director of Marketing and Mortgages
5-year variable open mortgage rates are not common in Canada, but they do have their uses. Open mortgages are a special kind of product, offering lots of flexibility in your pre-payments. This flexibility comes at a price, however, as open mortgages come with higher rates.
A variable mortgage rate is also a specialized product. With a variable rate, your rate will change alongside prime rates. That means your regular mortgage payments can also change. Be sure to make enough room in your budget for this eventuality.
Should you get an open or closed mortgage?
If you’re thinking of moving soon, or if you’re expecting a lump sum of money from an inheritance or bonus, you may want to consider an open mortgage. With an open mortgage, you're able to pay off the entire balance of your mortgage at any time throughout your term, without penalty. The downside is you will pay a premium for this flexibility, in the form of a higher interest rate.
Closed mortgages, on the other hand, are the more popular option chosen by Canadian homebuyers, because their interest rates are much lower. With a closed mortgage, you’re only allowed to pay down a certain amount of your principal each year, as defined in the pre-payment options of your mortgage contract. If you pay off the entire balance before your term is up, you’ll be hit with a pre-payment penalty.
Eligibility for advertised rates
It's important to remember that the rates advertised on the rate tables on this page may not be the rates that you are offered when you make a mortgage application. Your personal mortgage rate will be based on your individual financial situation, and will take into account your credit score, income, level of debt and many other factors.
The best way to get more certainty about what mortgage rates you'll actually qualify for is to speak to a mortgage broker, who can give you expert advice about your personal financial situation at no cost to you.
The bottom line
As with all mortgages, the best thing you can do is to compare multiple lenders against each other. This lets you find a great rate, as well as decide which mortgage features you need. Use the tools at the top of this page to get personalized mortgage quotes from multiple lenders in less than a few minutes.
Jamie David, Director of Marketing and Head of Mortgages
Jamie has 15+ years of business and marketing experience. She contributes her mortgage expertise to The Globe and Mail and authors Ratehub’s mortgage and homebuying guides. read full bio