5-year variable mortgage rates in Canada
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WATCH: October 25, 2023 Bank of Canada announcement
What is the best 5-year variable mortgage rate in Canada?
As of December 5, 2023, the best high-ratio, 5-year variable rate in Canada was 5.95%. To see today's rates, visit our rate table to see the 5-year variable mortgage rates offered by Canada’s Big Banks and top lenders.
To get a personalized mortgage quote, click on the preceding link and enter some basic information (i.e. down payment amount, purchase price, location) so we can give you a more accurate quote within 2 minutes.
How much have variable rates increased so far in 2023?
On January 1, 2022 the best high-ratio, 5-year variable rate in Canada was 0.85%. As of November 21, 2023, the best high-ratio, 5-year variable rate in Canada was 6%.
From March 2022 to November 2023, variable mortgage rates in Canada went up a total of 5.15%, which represents an increase of over 600%.
Why did variable rates go up so much in 2022 and 2023?
Variable rates are directly tied to a lender’s prime rate. Lenders set their prime rates based on the Bank of Canada’s target for the overnight rate (also known as the policy or benchmark interest rate in Canada).
In March 2020, the Bank of Canada slashed the target for the overnight rate multiple times in response to the COVID-19 pandemic. It maintained the policy interest rate at the lower bound of 0.25% until March 2, 2022 - a historic low.
Between March 2, 2022, and January 25, 2023, the Bank of Canada increased the target for the overnight rate a historic total of eight times in an effort to combat rapidly rising inflation. As a result, the prime rates of most lenders also increased. After a brief pause to assess the impact of its rate hike cycle, overheated inflation, unexpectedly robust GDP growth in the first quarter of 2023 and strong job numbers incited the Bank of Canada to hike its target for the overnight rate by 0.25% in both June and July, taking it to 5% today (a rate not seen since 2001). Once more, lenders’ prime rates increased, and the cost of borrowing went up. At its last two announcements on September 6 and October 25, the Bank of Canada held the target for the overnight rate at 5%, but did not rule out further rate hikes if deemed necessary to rein in inflation.
Because variable rates are actually calculated as a discount from the prime rate, as prime rates rose in 2022 and 2023, so did variable rates.
Should I switch my variable-rate mortgage to a fixed-rate mortgage if the prime rate increases?
You may be thinking about locking in a fixed rate because the prime rate increased throughout 2022 and your variable rate has moved higher. However, it’s important to note that fixed rates have been increasing significantly as well. Therefore, you have to choose between a variable or fixed rate based on the current rate environment and your decision should come down to your appetite for risk and your household finances.
The Bank of Canada held its target for the overnight rate at 5% at its last announcement on October 25, citing weakening GDP figures, reduced consumer spending, increased slack in the labour market, and September’s lower-than-anticipated CPI reading of 3.8% as its primary reasons for doing so. However, in its accompanying commentary, the Bank reaffirmed its resolve to tamp inflation down to its 2% target, and made it clear that further rate hikes this year remain possible if inflation does not trend in line with its expectations.
Before switching your mortgage, the main thing to consider is the spread between your current variable rate and the best fixed or variable rate you can get today.
If the spread between your current rate and the best rate you can get today is greater than the amount by which you believe the prime rate will increase for the rest of your mortgage term, then you may end up saving more by keeping your current variable rate.
If the discount to prime of the best variable rate you can get today is bigger than your current variable rate, then switching to a new variable rate may afford you more savings and provide a greater cushion against further rate increases.
If you believe that you can save more money by breaking your current variable rate, make sure to account for the cost of breaking your mortgage. You can use Ratehub’s penalty calculator to help you estimate this cost.
Lastly, if your biggest concern is the change to your monthly mortgage payments, there are some lenders who offer variable rates with “fixed” mortgage payments that do not change during the term. In such cases, when prime goes up, your monthly payment remains the same but the percentage of your payment that goes towards your principal decreases. This means that more of your payment goes towards paying the increased interest and ultimately it may take you longer to pay back your mortgage amount in full. That said, you should be aware that these types of mortgages are subject to hitting what is known as the trigger rate, wherein your payments are no longer going to the principal, and may not even be covering the costs of interest in full. Once this happens, you go into what’s called ‘negative amortization’, where you are actually losing equity that you’ve built up in your home. This can lead to you reaching your trigger point, where your payments are so much less than even the cost of interest on your mortgage loan that you need to increase them. Trigger points vary from lender to lender, and are spelled out in your mortgage contract.
Will variable rates continue to go up in 2023?
In its last announcement on October 25, the Bank of Canada held the target for the overnight rate for the second month in a row after having hiked it by 0.25% in both June and July. While the Bank cited a number of key economic factors to justify holding the rate, including weak GDP figures, a slacker labour market and reduced consumer spending, it also noted that inflation remained above its target of 2%. In the accompanying commentary to its October 25 announcement, the Bank strongly reaffirmed its commitment to bringing inflation down to its target of 2%, and made it clear that a further rate hike in 2023 could be expected should inflation not trend in the right direction.
While it’s too early to tell if another rate hike will be needed, in the wake of the October 25 announcement, variable mortgage rates remained relatively stable, with the best variable mortgage rate standing at 6% as of November 15. The benchmark cost of borrowing is the highest it has been since 2001, and could potentially climb even higher before the year is done if inflation remains elevated.
What impact do elevated variable rates have on the stress test?
With mortgage rates at historic highs, the mortgage stress test has gone up as well. Mortgages in Canada are currently stress tested based on the higher of:
- the qualifying rate (currently 5.25%), or
- your contract rate + 2%
As of November 21, 2023, the lowest 5-year variable rate available in Canada is 6.00% and the lowest 5-year fixed rate in Canada is 5.29%. As such, both variable rates and fixed rates are now stress tested using your contract rate +2% as this will always end up being higher than the current qualifying rate of 5.25%. Today’s mortgage stress test starts in the mid-7 - 8% range for many borrowers.
What is Canadian Lender and Big 6 Bank?
On our rate comparison tables, Ratehub.ca features generic brands like “Canadian Lender”. The “Canadian Lender” rate represents the lowest rate our brokerage can offer among the different lenders we work with. This means that this rate can be from a Big Bank, trust company, or lending company. The reason we do not advertise the rate under the name of the actual lender offering it, is because the rate is only available through our brokerage, via a special volume discount or promotion.
Similarly, “Big 6 Bank” is another generic provider that is used to advertise the lowest Big Bank rate that the Ratehub.ca brokerage can offer.
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November 2023 mortgage market update
The Canadian mortgage market has been characterized by significant volatility of late, and October 2023 is proving to be no exception so far. Historically high bond yields are placing substantial upward pressure on fixed mortgage rates. Meanwhile, the Bank of Canada’s two consecutive rate hikes in June and July, which brought the target for the overnight rate to 5%, have left variable mortgage rates elevated as well. If you’re looking to get a mortgage in Canada, here’s what you need to know:
Bond market update: Following months of historically high levels, Government of Canada bond yields are at last starting to moderate in response to recent rate holds from both the Bank of Canada (on October 25) and the US Federal Reserve (on November 1).
Canadian five-year bonds have come down to the 3.7% range, descending from a high of 4.4% in October (a level not witnessed for 17 years). This has made it possible for lenders to lower their fixed mortgage rates, as bond yields are what sets the threshold for fixed-rate mortgage product pricing. The first week of November saw a number of lenders reduce their fixed mortgage rates by about 30 basis points (0.3%).
Although it’s not easy to say whether this trend will continue, several key economic reports strengthen the case for central banks to bring their rate hiking cycles to an end, such as the latest jobs and GDP reports that both came in below expectations. Moreover, inflation, which is the primary driver of rate hikes, also seems to be trending downward, with October’s CPI reading coming in at 3.1%, well below the previous month’s figure and roughly in line with expectations. Should these tendencies persist, it is highly likely that the Bank of Canada will once more hold rates at its final announcement of the year on December 6, 2023. Market analysts are increasingly saying that we can expect to see rate cuts potentially as early as the second half of 2024.
CPI update: The Bank of Canada watches inflation like a hawk, as it is the main economic metric that guides its monetary policy. To try to control inflation, the Bank uses its policy rate, also known as the target Overnight Lending Rate or benchmark rate. During periods when inflation is running hot, as it has been since pandemic-related lockdowns came to an end in 2021, the Bank raises its policy rate to increase the cost of borrowing. This in turn has the effect of cooling consumer spending and borrowing behaviour. In contrast, when the economy is sluggish, the Bank lowers the policy rate to encourage borrowing and spending.
On November 21, Statistics Canada published the most recent consumer price index (CPI) data for the month of October 2023. Inflation in October came in at 3.1%, essentially in line with expectations and notably below September’s reading of 3.8%. On a monthly basis, CPI rose just barely by 0.1%, following a decline of the same size in September.
According to the latest report, declining gas prices played the biggest role in reining in the pace of inflation, having fallen by -7.8%. However, other factors, namely mortgage interest costs and rents, remain elevated, having risen by 30.5% and 8.2% year over year, respectively. Service prices are also exerting upward pressure on the CPI, having increased by 4.6% on an annual basis. Grocery costs, on the other hand, declined to 5.4% (down from September’s 5.8%).
Further positive news came in the form of cooling Core inflation, which is the inflation stripped of the most volatile costs such as gas and food. Core inflation fell to 3.6% in October, down from 3.7% the month before. Taken together, the data strongly supports a third successive rate hold from the Bank of Canada at its last announcement of the year on December 6. Mortgage borrowers and home buyers can reasonably expect stability for the rest of 2023.
Real estate update: On November 15, 2023, the Canadian Real Estate Association (CREA) published the most recent housing market data for the month of October. The latest numbers show that the Canadian real estate market continued to soften in October, continuing a trend observed over the summer and into the fall. The latest CREA numbers show that home sales declined in the majority of markets across Canada.
A total of 33,921 homes changed hands nationwide in the month of October, down by -5.6% from the previous month, and virtually unchanged on an annual basis with a 0.9% increase. The average home price in Canada came in at $656,625, a year-over-year increase of 1.8% and virtually the same as in September.
While a total of 70,020 residential properties came to market in October, this marked a monthly drop of -2.3%, the first such decline recorded since March. Still, when looked at year over year, new supply is up by 16%.
With demand having fallen more than new listings, the sales-to-new-listings ratio (SNLR) – used by CREA to measure competition in the market – fell to 49.5%, the lowest it has been in 10 years. This makes Canada’s real estate market firmly balanced, as CREA defines a ratio between 40 - 60% to reflect a balanced housing market, with above and below that threshold indicating sellers’ and buyers’ market conditions, respectively. This latest SNLR is substantially lower than the high of 67.9% recorded back in April 2023.
Assuming that the Bank of Canada keeps rates unchanged, we can expect the real estate market to remain relatively quiet until at least the spring of next year.
October 25, 2023 Bank of Canada announcement update
On October 25, 2023, the Bank of Canada held its target for the overnight rate unchanged at 5.00%.
- A multitude of economic indicators persuaded the Bank to maintain rates, including softening GDP, flat retail sales and, most importantly, September’s softer-than-expected inflation reading of 3.8%. Taken together, these data points indicate that the effects of the Bank’s rate hikes are making themselves felt.
- While this rate hold will be welcome news for variable-rate mortgage holders and those with home equity lines of credit (HELOC), these individuals may now be concerned about “higher for longer” interest rates.
- Fixed mortgage rates are tied to activity in the bond market, which reacted minimally to the Bank’s announcement, as it was widely expected. As such, they will remain at their current elevated levels for the foreseeable future.
- Anyone shopping for a home or whose mortgage is up for renewal should obtain a rate hold to protect themselves from any unexpected rate rises.
- The real estate market is softening across the country, with rising inventory, falling transactions, and weakening prices. Canadians looking to sell their home and buy a new one should sell first before purchasing in order to know what their sale price and home budget will look like.
Best 5-year variable mortgage rates +
|5.95%||5 years||Variable||Canadian Lender|
|6.25%||5 years||Variable||CMLS Financial|
|6.30%||5 years||Variable||First National|
|6.30%||5 years||Variable||Equitable Bank|
5-year variable mortgage rates: Quick facts
- Variable mortgage rates fluctuate with the prime lending rate.
- Variable rates are typically stated as "prime plus or minus a percentage".
- Just shy of 5% of all mortgage requests made to Ratehub.ca from January - September 2023 were for 5-year variable-rate mortgages.
- 5-year fixed mortgage rates are driven by 5-year government bond yields.
- 25% of all Canadian mortgage-holders had a variable-rate mortgage as of the end of 2022 (Source: Mortgage Professionals Canada)
Historical 5-year variable mortgage rates
Checking historical mortgage rates is a great way to properly understand which mortgage terms attract lower rates and whether rates are especially high or low at any given moment. Here are the lowest 5-year variable rates of the year in Canada for the last several years, compared to several other types of mortgage rates.
Source: Ratehub Historical Rate Chart
The popularity of 5-year variable mortgage rates
Although fixed-rate mortgages are more popular, according to Mortgage Professionals Canada, 25% of Canadian mortgage-holders had variable-rate mortgages at the end of 2022, making it the second most popular type of mortgage.
Historically, fixed rates are generally more popular, however, in the wake of the COVID-19 pandemic, the Bank of Canada cut its target overnight lending rate in March 2020, which caused the prime rate to go down. As a result, variable-rate mortgages experienced a surge in popularity; as mentioned above, roughly 25% of all mortgages in Canada at the end of 2022 were variable-rate mortgages, in contrast to 20% in 2019. However, as variable-rate mortgages have climbed to rates significantly higher than fixed-rate mortgages in the wake of multiple Bank of Canada rate hikes over the course of 2022, their popularity has waned considerably in 2023. While some 26% of all rate inquiries to Ratehub.ca in 2022 were for 5-year variable rates, they accounted for just shy of 5% of all rate requests to Ratehub in January - September 2023.
A 5-year mortgage term is the most popular duration. It sits right in the middle of available mortgage term lengths, between one and 10 years, and, thus, its popularity reflects a risk-neutral average. It also tends to be heavily promoted by major lenders. A further breakdown of mortgage terms shows that about 80% of mortgages have terms of five years or less.
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.
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 rate strategy and desired market share.
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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The bottom line: Should you get a 5-year variable rate?
As long as you're comfortable with risk and understand that variable rates can fluctuate throughout your term, then a 5-year variable rate is a reasonable choice. Since variable rates do have the inherent risk of rate increases, make sure you have enough money in your budget to cover a higher mortgage payment if rates increase.
If you're still not sure about what mortgage product is right for you, it's a good idea to speak to a mortgage broker. Consultations are free, and you'll leave with expert advice, personalized to you.
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