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Current Variable Mortgage Rates in Canada

For Tuesday, December 5, 2023:

The average insured bank interest rates in Canada for a 3-year variable and adjustable mortgage are unchanged since last week and now stand at 8.60%. Compared to a month ago, these rates are unchanged.

The average insured bank interest rates in Canada for 5-year variable and adjustable mortgages are unchanged since last week and now stand at 7.07%. Compared to a month ago, these rates are up 1 basis points.

1 basis point is 1/100 of a percentage point which is equal to 0.01%.

What are the lowest variable mortgage rates in Canada?

Currently, variable rate discounts (or added premiums) on the 3-year term range from 0.15% to 1.15% from the Bank Prime Rate sitting at . The most discounted variable rates are generally reserved for insured prime lending, with nesto leading the pack at while the national average sits at 8.60%.

Currently, variable rate discounts (or added premiums) on the 5-year term range from 0.5% to 1.50% from the Bank Rate sitting at . The most discounted variable rates are generally reserved for insured prime lending, with nesto leading the pack at while the national average sits at 7.07%.

Note: The average rate is calculated based on the posted rates of the 6 biggest lenders in Canada that together make up over 70% of the retail mortgage market in the country. These 6 biggest lenders are the chartered banks: Toronto-Dominion Canada Trust (TD), Royal Bank of Canada (RBC), Bank of Montréal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada (NBC).

What are the lowest adjustable mortgage rates in Canada?

Currently, variable rate discounts (or added premiums) on the 3-year term range from 0.15% to 1.15% from the Bank Prime Rate sitting at . The most discounted variable rates are generally reserved for insured prime lending, with nesto leading the pack at while the national average sits at 8.60%.

Currently, variable rate discounts (or added premiums) on the 5-year term range from 0.5% to 1.50% from the Bank Rate sitting at . The most discounted variable rates are generally reserved for insured prime lending, with nesto leading the pack at while the national average sits at 7.07%.

Note: The average rate is calculated based on the posted rates of the 6 biggest lenders in Canada that together make up over 70% of the retail mortgage market in the country. These 6 biggest lenders are the chartered banks: Toronto-Dominion Canada Trust (TD), Royal Bank of Canada (RBC), Bank of Montréal (BMO), Bank of Nova Scotia (BNS), Canadian Imperial Bank of Commerce (CIBC) and National Bank of Canada (NBC).

Your Guide to Getting the Best Variable Mortgage Rates

Typically, 70% of all mortgage holders across Canada prefer to carry a fixed mortgage rate.  This preference is not due to its lure as the cheapest or best option but rather for its predictable and safe repayment schedule.  Interestingly, many banks promote fixed rates because that’s where they earn their biggest profits. A likely reason why many borrowers are more familiar with fixed rates.  Historically, variable-rate mortgages have saved borrowers the most money over time as part of a longer-term mortgage strategy. So it may make sense for you to explore this option.

A variable interest rate can increase and decrease during your term. If you choose a variable interest rate, your rate may be lower than a fixed rate.  Having a variable interest rate means you’ll also be the first to realize savings or costs due to fluctuations in your lender’s prime rate.

How do variable mortgage rates relate to the prime rate?

A variable-rate mortgage fluctuates with nesto’s prime rate – which mirrors the movement in the Bank of Canada’s key policy rate – throughout your mortgage term. 

Interest rate is the percentage of interest any lender charges throughout a loan. There’s a difference between interest rates set by the banks and those set by the Bank of Canada (BoC).

The Bank sets a baseline interest rate twice every quarter. This baseline rate is the Key Overnight Target Rate used to lend money to banks.  Banks will add a spread to this baseline and call it their Prime Rate.

Bank of Canada Policy & Prime Rate Changes

Date of Rate ChangeKey Overnight Target Rate (%)Change (%)Bank Prime Rate
June 2, 20100.30%0.25%2.50%
July 21, 20100.55%0.25%2.75%
September 9, 20100.80%0.25%3.00%
January 28, 20150.65%-0.15%2.85%
July 16, 20150.50%-0.15%2.70%
July 13, 20170.75%0.25%2.95%
September 7, 20171.00%0.25%3.20%
January 18, 20181.25%0.25%3.45%
July 12, 20181.50%0.25%3.70%
October 25, 20181.75%0.25%3.95%
March 5, 20201.25%-0.50%3.45%
March 17, 20200.75%-0.50%2.95%
March 30, 20200.25%-0.50%2.45%
March 3, 20220.50%0.25%2.70%
April 14, 20221.00%0.50%3.20%
June 2, 20221.50%0.50%3.70%
July 14, 20222.50%1.00%4.70%
September 7, 20223.25%0.75%5.45%
October 26, 20223.75%0.50%5.95%
December 7, 20224.25%0.50%6.45%
January 25, 20234.50%0.25%6.70%
March 8, 20234.50%0.00%6.70%
April 12, 20234.50%0.00%6.70%
June 7, 20234.75%0.25%6.95%
July 12, 20235.00%0.25%7.20%
September 6, 20235.00%0.00%7.20%
Bank of Canada’s Benchmark Key Policy Target for the Overnight Rate increases. This is the benchmark or Policy rate that dictates all lending in the country. Source: Bank of Canada

The Bank of Canada (BoC) will deliberate on the Key Overnight Target rate twice every quarter. Generally, all lenders will follow suit to keep their prime rates in line with the country’s Big Six chartered banks. Find below the most recent changes to the baseline, which impacted the spreads to the Big Banks Prime Rates.

You can find more details about the Key Overnight Target Rate and an explainer from the Bank of Canada (BoC) if you want to learn more about this topic.

How are variable mortgage rates determined?

The interest rates charged on variable mortgages are affected by changes in the Bank Rate and Policy Rate (also known as the Target for the Overnight Rate) set by the Bank of Canada. Every lender uses the Policy Rate to determine their prime rate. Since variable-rate mortgages fluctuate with their lender’s prime rate, there is a direct correlation between the overnight rate and the interest rate on variable mortgages.

Lenders often provide a discounted variable rate to attract customers and compete with other lenders. The discount amount is determined by each lender’s profitability and market conditions. When you sign up for a variable rate, your lender discount remains unchanged throughout the mortgage term, even if the rate fluctuates. When your lender’s prime rate changes, the rate on your variable-rate mortgage (VRM) and your adjustable-rate mortgage (ARM) will move in tandem with their discounts.

What drives changes in variable mortgage rates?

Variable mortgage rates fluctuate with your lender’s prime rate. The prime rate is determined by the Bank of Canada’s overnight lending rate, which is decided at 8 scheduled meetings yearly. Usually, the policy and prime rates move in tandem, but there can be exceptions. 

Changes in the policy rate directly impact short-term interest rates, including the prime rate used by banks and lenders for variable-rate mortgages. The policy rate set by the Bank of Canada can also influence long-term interest rates, especially if a lasting change is anticipated. Expectations about the Bank of Canada’s ability to manage inflation determine fixed mortgage rates; however, the policy rate serves as the benchmark for all rates in Canada.

Variable rates are typically expressed as prime plus (+) or minus (-) a certain percentage. This premium or discount remains consistent throughout your mortgage term relative to the prevailing prime rate. If you have a variable-rate mortgage, you have the option to convert to a fixed rate without any additional cost during the mortgage renewal process.

Types of Variable Mortgages

There are 2 types of variable-rate mortgages: those that have static payments and those that have fluctuating payments. Static payment variable-rate mortgages are more specifically called variable-rate mortgages (VRM). In contrast, variable-rate mortgages with a fluctuating payment, where the payment adjusts with changes in the lender’s prime rate, are more accurately called adjustable-rate mortgages (ARM). Commonly, they are both known as variable-rate mortgages.

Variable-Rate Mortgage – Fixed Payments with a Fluctuating Rate

This option offers a fixed payment which does not fluctuate with interest rate changes over the mortgage term.  

As the payment is intended to stay the same, any increases to the interest rate will mean that more of the regular payment goes towards interest. An increasing interest rate component will cause the principal balance not to be paid. The repayment schedule could change – increasing your remaining amortization.  Although not often, when rates go up, they can cause this type of mortgage to over-amortize. Over-amortization means that when your 5-year term ends, you may have added another 7 more years to your amortization.  

If you’re in this option in a rising rate environment, you’re most at risk of payment shock at renewal.  Additionally, you may be affected by trigger rates and trigger points during the term of your mortgage. These risks are explained below by examining how they affect a fixed (or static) payment variable-rate mortgage.

If interest rates decrease, then more of your payment will go toward the principal causing the mortgage to be paid off faster – meaning a lower remaining amortization at the end of your term.  It has been evident in the past market cycles that, generally, rates will have a downward trend creating interest cost savings for borrowers who choose this option.  This overpayment means that possibly at the end of your 5-year mortgage term, you could have paid off 8 years of principal.

Adjustable-Rate Mortgage – Adjustable Payments with a Fluctuating Rate

This option offers an adjustable payment which fluctuates with interest rate changes over the mortgage term. 

With this arrangement, the principal portion of your mortgage payment stays consistent throughout your mortgage term. The interest portion of your mortgage payment will fluctuate with changes to your lender’s prime rate.  You will realize a change to your mortgage payment with each change to the interest rate on your variable-rate mortgage with fluctuating payments. No changes to your remaining amortization are expected unless you Prepay any part of your principal mortgage balance during the term of your mortgage.  No risks are associated with this mortgage option except payment shocks in a rising rate environment.

Benefits of a Variable Mortgage

Whether you choose a fluctuating payment (ARM) or fixed payment (VRM) option, they share some key benefits.

1. If rates fall, more of your payment goes directly towards paying off the principal amount of your mortgage. In other words, you’ll pay less interest on your mortgage throughout your term. However, if you have an ARM you will need to keep your mortgage payments the same to realize this benefit.

2. It’s cheaper to break a variable-rate mortgage – three months’ interest payment vs an interest rate differential (IRD) penalty often associated with breaking a fixed-rate mortgage. 

Disadvantages of a Variable Mortgage

Three main disadvantages of variable-rate mortgages affect the fixed (or static) payment version of this type of mortgage.

Payment Shock

The main drawback of fixed payment variable rate mortgages may be payment shock at renewal time. How could this happen? If rates go up and your payment doesn’t, your mortgage could over-amortize. That means the remaining amortization and balance will exceed your expected repayment schedule. Your new payment will be based on the remaining mortgage balance on an amortization reduced by your term. 

For example, if you go into your mortgage term with a 25-year amortization, after 5 years, you should have only 20 years left.  However, if your mortgage has over-amortized, you could have 27 years left to pay when you finish your term.  At the time of renewal, your amortization will have to be rolled back to the chronological 20-year remaining period, thus causing your payment to be much higher.

Trigger Rates

The trigger rate on the variable-rate mortgage is reached when the fixed payment no longer covers the mortgage payment’s interest portion.  The trigger rate occurs when no principal is paid down on your mortgage, leaving only the interest paid down while rates increase.

Once you hit your trigger rate before renewal, your lender may offer to re-adjust your mortgage payment, similar to renewal, to balance it back to where it should be.

You can proactively take control of your mortgage by exercising one of the following options:

  1. You can renew your mortgage with an adjustment to your payment to bring it in line to continue paying down your principal.
  2. You can pay down your principal and keep your payment the same.
  3. You can pay down your mortgage and increase your payment – taking advantage of both options to avoid a big hit to your cash flow or savings.

Trigger Point

The trigger point is when the balance owing on your mortgage is more than the original mortgage amount. The trigger point occurs as the interest repayments take away more of the principal component of your mortgage payments once your trigger rate is surpassed.

At this point, your lender must put your mortgage back on track by having you exercise one of these options:

  1.  Principal prepayment to cover the ballooned principal balance.
  2. Increasing your payment to compensate for the additional payment to the principal.
  3. Refinance your mortgage to increase your amortization.

Before you move ahead with any of these options, it is advised that you reach out to a mortgage expert to discuss your options before making changes to your mortgage or payment that you may need help to afford or reverse.

Open vs. Closed Mortgages

An open mortgage offers the flexibility of prepaying any amount of your mortgage anytime without a prepayment penalty. However, the compromise for having an open mortgage is that interest rates are higher to make up for the option of being able to pay it off at any time. Lenders price this option higher to account for the loss in possible interest if the borrower should payout or transfer the mortgage sooner than expected.

The interest rate is more attractive on a closed mortgage as your annual prepayment privilege limits you. Your prepayment is limited to a percentage approved on your original mortgage amount. And if you pay more than your annual limit, you’ll receive a prepayment penalty – calculated similarly to if you pay off your mortgage before maturity.  It is important to weigh the benefits and their suitability to your borrowing needs before deciding on a mortgage rate, term or type.

Which Type of Variable Rate is Better?

While it is a personal choice if you prefer an adjustable versus a variable mortgage, your choice will be influenced by the trajectory of rates in the current market, your risk appetite due to that trajectory and, of course, the need/use for that mortgage. 

For instance, if you’re using this mortgage to purchase a rental/investment property, you may want a variable-rate mortgage as your interest will increase. You can have more interest to write off against your rental income. 

The variable rate mortgage type that suits you depends on your risk and situation. Many clients holding a mortgage for an investment property may decide to keep the interest portion of their mortgages higher than the principal portion. Interest paid for investment purposes may be used to reduce the overall taxable (rental) income.

For an investment property where the borrower’s goals, risk appetite, and cash flow allow, it may be prudent to choose a VRM.

In most cases where the mortgage is used for a principal residence or their goal is to pay off the mortgage sooner, it may be wiser to choose an ARM.

Is a Variable Rate Better Than a Fixed Rate?

A variable rate mortgage has proven to save borrowers more money than a fixed rate over time. Every borrower’s circumstances and goals differ; therefore, an advisor should thoroughly discuss all current financial restraints and future considerations before deciding on the most suitable mortgage.

With a variable mortgage, the interest rate will fluctuate depending on benchmark rates, whereas a fixed rate remains the same throughout the mortgage term. A fixed-rate benefits budgeting and offers financial stability, given that mortgage payments always remain the same. 

Deciding on a variable or fixed rate is a question of personal choice and risk appetite. We recommend speaking with a mortgage professional to assess any material risks that may pose a concern for you over the term of your mortgage. 

While variable mortgages have proven to be more cost-effective over time than fixed mortgages, some people prefer the certainty of having the same payment throughout the mortgage term.

For a first-time home buyer (FTHB) who is getting used to all their new bills related to owning a home, it is recommended that they choose a fixed rate to provide some stability during the first term of their mortgage. By making their biggest monthly obligations (mortgage, condo/maintenance/strata fees and property taxes) static amounts, they can take the time to put together a financial plan and start to put aside some money towards their emergency savings.

How nesto works

At nesto, all of our commission-free mortgage experts hold concurrent professional designations from one or more provinces. Our clients will receive the best advice and care when they speak with experts exceeding the industry status quo.

Unlike the industry norm, our agents are not commissioned but salaried employees. Our honest and transparent advice guarantees free, unbiased advice on the most suitable mortgage solution for your unique needs.  Our advisors are measured on the satisfaction and quality of advice they provide to their clients.

nesto is working hard to change how the mortgage industry functions. We start with honest and transparent advice, followed by our best rates upfront.  We can offer you these best rates by using technology by providing a virtual and 100% online process to reduce our overhead costs.

By working remotely across Canada, all our mortgage experts and staff spend less time commuting to work and more time with their friends and family. This makes for more dedicated employees and contributes to our success with happy and satisfied clients.

nesto is on a mission to offer a positive, empowering and transparent property financing experience, simplified from start to finish.

Reach out to our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.

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