Chat with us, powered by LiveChat


Mortgage Maestro makes mortgages easy. Continue reading to learn more about mortgages, the latest industry updates and meeting your financial goals.

Variable mortgage rates in Canada

If you have been looking for a mortgage, you may have heard the word ‘variable rate.’ Variable, as the term defines, is not fixed or predetermined. Most Canadian lenders offer attractive variable mortgage rates to first-time homebuyers or property owners looking to refinance, renew or take out a line of credit. Most Canadians consult mortgage specialists, who assist them in customizing their mortgage solutions. Before choosing a mortgage, it would be best to consider many factors, including mortgage terms, interest rates, penalties, and more.

Variable Mortgage Rates in Canada

What is a variable mortgage rate?

A variable rate refers to a term where the interest rate fluctuates according to the market conditions. Variable rates are typically displayed as prime plus or minus a percentage discount or premium. For example, a variable rate could be quoted as prime – 0.8%. So, when the prime rate is 3%, you will pay 2.2% interest (3%-0.8%). When you choose a variable rate mortgage, you can set up the monthly payments in two ways:

Set regular payment

When the borrower decides to pay the same amount every month, it is called a ‘set regular payment.’ Having set regular payments protects you against interest rate fluctuations. If the interest rate drops, you can channelize a higher percentage of your payment towards the principal amount. In case of a rise in the interest rates, you will only be able to divert a lower portion of your monthly payment towards the principal amount.

Fixed amount payment

In this scenario, the customer commits to pay a fixed amount monthly towards the principal. The interest portion keeps fluctuating depending on the market conditions, which alters the overall monthly payment. Please note, the mortgage term and amortization period are different concepts. The mortgage term refers to the period for which you choose a fixed or a variable rate, after which you can refinance or renew your mortgage. The amortization period refers to the time you will need to pay off the entire mortgage if you only make monthly payments.

What are the benefits of variable-rate mortgages?

You are exposed to interest rate fluctuation when you opt for variable rates, which directly impacts your mortgage payments. However, variable-rate mortgages often prove less expensive when compared to fixed-rate options. Historical data reveals that homeowners benefit from the seasonal decrements in the interest rates when they opt for variable-rate mortgages. Also, variable mortgages have lower interest rates than fixed mortgages.

Is a variable-rate mortgage a suitable option for you?

On average, almost 51% of borrowers opt for variable-rate mortgages. However, it all depends on the difference between the rates. When the difference is broader, more borrowers opt for variable rates. When the prime rate is likely to go down, variable rates are the most sought after. At times, the difference between variable and fixed rates can even go beyond 1%. A 1% difference in your interest rate can amount to thousands of dollars in savings over the lifetime of your mortgage. Historical data shows that the difference between fixed and variable interest rates for a five-year term has been around 1.25%. Borrowers can also switch from fixed to variable mortgage plans. In these cases, some lenders offer to cover the appraisal and legal fees.

Why do most people choose a five-year variable-rate mortgage?

Among the different variable mortgage options in Canada, five-year is the most popular. Here are some reasons why:

  • Statistics show that variable rates cost less in interest charges over the long term than fixed rates. Sometimes, the rate of interest has been low for 30 years at a stretch!
  • With five-year plans, you are less susceptible to the risk of a penalty. Even if you breach the contract before five years, the penalty may not be too harsh.

Five-year variable-rate mortgages are not necessarily a suitable option for every homeowner. If you know that you can pay off the mortgage in a few years, you can go for a 3-year term instead. Mainly, if you plan to sell or upgrade your property, a 3-year term will be more beneficial than a 5-year term. This can also help you save money on penalties.

Once you reach out to Mortgage Maestro, our mortgage experts can help you find custom solutions.