Find Today’s Lowest 3-Year Variable Rate Mortgage

The average 3-year variable conventional mortgage rate is 5.18%.

The lowest 3-year variable insured mortgage rate is .

A 3-year variable mortgage rate covers a 3-year term in which your interest rate may fluctuate. Any changes to the Bank of Canada policy rate will change your lender’s prime and variable rates on new mortgages. Your variable mortgage rate will change with the prime rate, minus any discounts set by your lender at the beginning of your contract. 

For example, if you signed a contract for prime minus 0.90%, your rate is the prime rate with a 0.90% discount. If the prime rate were 7.20% when you first signed the contract, your rate would have been 6.30%. If your lender’s prime rate decreased to 6.95% during your term, your rate would now be 6.05%.

A 3-year variable mortgage offers the benefit of lower interest costs if rates decrease during your term. With variable-rate mortgages, you realize these cost savings either as your mortgage payment immediately decreases or as more of your payment goes toward principal and less toward interest, reducing your amortization. 

Breaking a variable mortgage is generally less expensive than a fixed mortgage, since you are charged a penalty equal to 3 months of interest rather than the interest rate differential (IRD) used to calculate fixed-rate mortgages. Since a 3-year term is shorter, you’re less likely to pay a penalty as your term will end earlier than if you were to choose a 5-year variable term.

A 3-year variable mortgage means your interest rate may change at any time during the mortgage term. If rates increase, you will immediately feel the effects of higher rates. If you have an ARM, you could risk payment shock if interest rates continue to increase, causing your mortgage payments to increase substantially. If you have a VRM, you could risk hitting your trigger rate or trigger point, causing your mortgage balance to increase rather than decrease, leading to negative amortization.

Payment shock can occur if your mortgage payment drastically increases. This can happen with variable-rate and adjustable-rate mortgages if your payments increase to the point that they are no longer affordable on your income. 

If you have an adjustable-rate mortgage (ARM), you will immediately realize an increase in interest rates through increased mortgage payments. If interest rates rise quickly, you could risk a payment shock at any time during your mortgage term, as your payments may rise to a level that becomes unaffordable. 

If you have a variable-rate mortgage (VRM), you may realize payment shock at renewal if your mortgage has over-amortized. This occurs when your remaining mortgage balance and amortization exceed the expected repayment schedule. You must then renew your mortgage and put your amortization back on track. 

For example, if you started with a 25-year amortization, after 3 years, you should have 22 years remaining. However, if your mortgage ended up over-amortized due to increasing interest rates, you could end your mortgage term with 25 years remaining. At renewal, you may need to return to a 22-year amortization to stay on schedule, which can increase your mortgage payments substantially, causing payment shock.

Hitting your trigger rate applies to those with a variable-rate mortgage (VRM) and occurs when the fixed mortgage payment only covers interest. As rates increase, your mortgage payment eventually no longer covers the principal portion. When each mortgage payment is made without covering any principal, your amortization will increase instead of decrease. 

The trigger rate should be outlined in your mortgage documents and applies if you have not made any prepayments during your mortgage term. You can also calculate your trigger rate if you know your mortgage payment, how many payments you make a year and the remaining mortgage balance. 

For example, if you pay $1,200 bi-weekly and owe $600,000, your trigger rate will be 5.2%, calculated as:

$1,200 x 26 / $600,000 x 100 = 5.2%

This means once interest rates on your VRM reach or exceed 5.2%, you are at risk of hitting your trigger rate.

Hitting the trigger point applies to those with a VRM and occurs when the fixed mortgage payment only covers interest for some time. This has allowed the mortgage balance to increase rather than decrease, and grow to more than the original mortgage amount. You’ve now hit your trigger point and will be required to put your mortgage back on track.  

You can get your mortgage back on schedule by making a prepayment to pay down the ballooned principal, increasing your mortgage payments to cover the increased principal payments, or refinancing the mortgage and extending the amortization. 

Each variable-rate mortgage’s trigger rate and trigger point will vary based on the specifics of the mortgage.

3-year variable rates are determined based on the Bank of Canada policy rate. When the policy rate is adjusted, lender prime rates will also move by the same amount, either up or down. Prime rates are set at the policy rate plus a spread, typically 2.20% above the policy rate. 

3-year variable mortgage rates are then set based on the lender’s prime rate plus or minus a percentage discount or premium. The premium or discount varies between lenders, as it reflects their funding, risk, and overhead costs when lending.

The BoC policy rate is a monetary policy tool used to control inflation in the Canadian economy. It is adjusted on 8 fixed dates each year, reacting to economic changes to keep inflation within the target range. 

When inflation is too high, the BoC increases interest rates to make borrowing more expensive. This impacts consumer spending habits and cools the economy, returning inflation to the target range. 

When inflation is too low, the BoC decreases interest rates to make borrowing less expensive. This encourages borrowing and spending, stimulating the economy and contributing to inflation, allowing it to return to the target range. 

The effects of monetary policy decisions take approximately 6 to 8 quarters to work through the economy and affect inflation, so the BoC’s decisions today will not fully impact the economy for 18 to 24 months. This makes monetary policy decisions forward-looking, with rates set based on predictions of future inflation rather than what it is today.

To apply for a 3-year variable mortgage at nesto, answer a few questions or give us a call to speak with a mortgage expert to help you find your best mortgage solution. A mortgage expert will guide you through the process, explaining the features, benefits, and restrictions to ensure that a 3-year variable mortgage rate makes the most sense for your financial situation and mortgage needs.

Pre-approvals and pre-qualifications will analyze your borrowing capacity and examine your income, debts, downpayment, and savings. This will be compared to your total net worth minus what you have set aside for your downpayment and closing costs. These assessments typically occur before you have found a property. Pre-qualifications do not guarantee a rate. 

Some lenders will offer a pre-approval with a rate hold and attach a premium to the rate. Rate holds can provide peace of mind when shopping for a property if rates are expected to rise before you expect to have an offer accepted.

Lenders that offer the best rates typically only offer live rates, meaning you can only lock in a rate once you have accepted an offer on a property and applied for a mortgage. Speak with one of nesto’s mortgage experts to determine if a pre-approval or pre-qualification for a 3-year variable mortgage suits your home financing needs.

Depending on the rates offered, some lenders will hold your discount from the prime rate for a set amount, typically 60 to 180 days. This allows time to find a property without worrying about changes to your discount. Once approved for the mortgage, the lender will issue you a mortgage commitment that locks in a discount off their prime rate for a variable- or adjustable-rate mortgage.

Most lenders will add a premium to the rate they hold for you. The lender must set aside this money for you, which comes at a cost since they can only utilize those funds once you return and fund your mortgage. Some lenders will offer a quick close rate if the mortgage is funded within 45-60 days. This rate is a special offer with a limited supply of money at that rate.

The mortgage term is the period during which the mortgage agreement is in effect. Variable mortgage terms are typically offered as 6 months, 1 year, 3 years, and 5 years. The term is just one of the criteria lenders use when pricing mortgages.

Mortgage types include adjustable, variable, fixed, open, closed, standard charge or revolving home equity line of credit (HELOC) under a collateral charge. The type of mortgage you select will determine the interest rates you are offered. 

Open mortgages have higher interest rates than closed mortgages because they offer greater flexibility to pay off the mortgage at any time without penalty. Fixed- and variable-rate mortgages will have different interest rates, influenced by different factors. 

Variable rates are determined by the lender’s prime rate, which is based on the Bank of Canada policy rate plus a spread. Fixed rates are determined based on bond yields of corresponding maturities (5-year fixed rates will follow 5-year bond yields) plus a spread.

The downpayment amount will determine your loan-to-value (LTV) ratio and whether you must purchase mortgage default insurance. Insured and insurable mortgages typically have lower interest rates since mortgage default insurance lowers the risk to the lender if you default on mortgage payments. Uninsured mortgages usually have higher interest rates to reflect the lender’s risk on these mortgages. 

Lenders assess your ability to afford a mortgage by examining your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios. GDS focuses on your housing expenses against your gross income, while TDS considers all your debts. For CMHC-insured mortgages, the standard ratios are 39% for GDS and 44% for TDS. 

Calculating your qualifying mortgage payment is subject to a stress test using the higher of your contract rate plus 2% or the minimum qualifying rate, which is currently 5.25%. The lower your qualifying ratios, the less risky you are to a lender. You could be offered more competitive rates if your qualifying ratios are lower.

If the subject property is used as a primary residence (owner-occupied), you will have access to lower interest rates than an investment property used as a rental. A property purchased as a primary residence with a second, separate, legally registered suite is considered an owner-occupied rental that will give you access to the same rates as a primary residence.

Refinances are considered uninsured transactions, which carry a higher risk than renewals. Lenders will price refinances higher based on the risk associated with the specific mortgage. 

Converting a mortgage from a variable to a fixed rate is also known as an early renewal. Lenders typically only offer undiscounted rates if you convert your variable or adjustable rate into a fixed mortgage rate.

While the amortization may not directly affect your interest rate, it will impact the amount of interest you pay over the life of your mortgage. A shorter amortization will help you save on interest-carrying costs, though mortgage payments will be higher. A longer amortization will lower mortgage payments but come at the expense of more interest over the life of the mortgage.

The best rates are reserved for borrowers with excellent credit scores. You’ll typically have access to the lowest prime lending rates if you have excellent credit. You may need to look into alternative lenders at higher interest rates if you have poor credit.

To qualify for prime lending and access the best rates, you need proof of stable income that can be verified through pay stubs, letters of employment or T4s if employed with an employer. 

For self-employed or incorporated individuals, you may require, at minimum, the Business Registration or Articles of Incorporation, Notice of Assessments (NOAs), T1 Generals and 3 months of business/corporate/individual bank account histories.