Best Ontario 5-year variable mortgage rates
What are 5-year mortgage rates?
The "5" in 5-year mortgage rates refers to the length of your mortgage term, which is the amount of time that you're committed to a particular lender and the set of rates, features and conditions that it has offered you.
What length terms do variable rates come with?
While fixed mortgage rates come with term lengths of between 1 and 10 years, variable rates tend to be offered with either 3-year terms or 5-year terms. This isn't generally a problem, as variable rates are more flexible than fixed mortgage rates, since they don't have as large a penalty for breaking your mortgage term early.
Are variable rates cheaper than fixed rates?
Historically, variable mortgage rates have resulted in greater savings, when averaged out over the long term. However, this is in part due to the fact that, through until 2020, we have seen a long term decline of interest rates. Because the Bank of Canada's overnight rate reached its "effective lower bound" in early 2020, it's uncertain as to whether this trend will continue. It's important to understand the risks associated with any mortgage rate type before you commit to it.
At the end of 2022, variable rates are in the relatively unusual situation of being higher than fixed rates. This is largely a result of the Bank of Canada hiking the target for the overnight rate multiple times over the course of the year, which in turn spurred lenders to raise their prime rates as well. It remains to be seen how long this situation will last, however, and it's a good idea to speak with a mortgage broker about your options if you're unsure of how to proceed.
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Jamie David, Sr. Director of Marketing and Mortgages
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.
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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)
- 39% of all Ontario mortgages closed with Ratehub.ca in 2021 were for 5-year variable 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.
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