Find the best 5-year variable mortgage rate in Ontario

As Canada's most populous province, Ontario has one of the hottest housing markets in the country, especially in Toronto and Ottawa. That means that shopping around to get a great mortgage rate in Ontario is even more important than it is in other provinces.

5-year variable-rate mortgages are one of the most common types of mortgages in Ontario, so it’s worth considering whether it would suit you. Ratehub.ca makes it easy to compare rates from the biggest banks, credit unions and other mortgage providers in Ontario, at no cost to you. Read on to learn more about comparing 5-year variable rates in Ontario.

5-year variable mortgage rates: Quick facts

• 16% of all Ontario mortgage requests made to Ratehub.ca in 2021 were for 5-year variable mortgages.
• 22% of Canadians had variable mortgage rates in 2020. (Source: Mortgage Professionals Canada)
• Just 5.36% of all mortgage requests made on Ratehub.ca from January - December 2023 were for 5-year variable-rate mortgages.
• 5-year mortgage rates are driven by 5-year government bond yields

Historical 5-year variable mortgage rates in Ontario

Looking over historical mortgage rates is the best way to understand which mortgage terms tend to attract lower rates. Doing so also helps you appreciate whether rates are currently higher or lower than they have been in the past.

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 in Ontario

Variable rates aren't as common as fixed rates in Ontario, or anywhere in Canada for that matter - just 33% of Canadian mortgages have variable rates in 2022 (Source: BNN). This is primarily because fixed rates lock in a single regular payment for the entire length of your mortgage term, whereas variable rates can result in changes to your monthly payments.

However, variable-rate mortgages tend to result in lower overall interest rates when averaged out long-term. As always, past results don't predict future trends, but variable rates will certainly let you take advantage of future drops in interest rates. As a result, there is a strong contingent of Ontario mortgages that use variable interest rates, generally between 15% and 30% of all mortgages, depending on where in the province you look.

As for the term length, 5-year mortgage term are used on the majority of all mortgages and is by far the most common 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.

 

What drives changes in 5-year variable mortgage rates?

Variable mortgage rates are set based on your lender's prime rate. When you receive your mortgage approval, you'll be given a variable rate expressed as Prime +/- X%. For example, you might have a variable rate of Prime - 1.00%. In this case, your prime rate will be 1% lower than whatever your lender's prime rate is.

By and large, prime rates follow the pattern of Canada Bond Yields, plus a spread. Bond yields are driven by economic factors such as unemployment, export, and inflation.

When Canada Bond Yields rise, sourcing capital to fund mortgages becomes more costly for mortgage lenders and their profit is reduced unless they raise mortgage rates. The reverse is true when market conditions are good.

In terms of the spread between the mortgage rates and the bond yields, mortgage lenders set this based on their desired market share, competition, marketing strategy, and general credit market conditions.

Here's an example of how this plays out. The graph below charts 5-Year Fixed Rates vs. 5-Year Bond Yields from 2000 to 2020.

Should you get a 5-year variable mortgage rate in Ontario?

As with most things in the mortgage business, it depends. While 5-year variable rates are fairly popular and are generally come with some of the lowest mortgage rates available, there are many reasons why you might not want to get a 5-year variable mortgage rate.

For example, if you think rates will go up in the coming years, it might be a good idea to lock-in today's rates for longer with a fixed mortgage rate with a long term of 5 to 10 years. Alternatively, you might need the flexibility that comes with a shorter mortgage term, such as a 3-year or 2-year mortgage.

If you're finding this all a bit confusing, don't worry - you're not alone! Speaking to a mortgage broker, or using Ratehub.ca to compare quotes from multiple lenders, can help you better understand your options. That's the first step in making the right choice.