Find Today’s Lowest 5-Year Variable-Rate Mortgages
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Today’s Best 5-Year Variable Rates
Key Takeaways
- Variable rate mortgages change over the course of your mortgage term.
- With a variable rate mortgage, your rate can change based on a number of factors. Most commonly, changes in the Bank of Canada’s key rate will trigger changes in your lender’s benchmark rate, and therefore your overall mortgage rate.
- Variable rate mortgages are valued for their flexibility, and can save you money over time compared to fixed-rate mortgages.
- We compare and offer some of the best 5-year variable rate mortgages available.
Your Guide to Getting the Best 5-Year Variable Mortgage Rates
While 70% of all mortgage holders across Canada currently have a fixed mortgage rate, this doesn’t mean it’s the best choice. A fixed mortgage often makes borrowers feel like they’re playing it safe. But, historically, variable-rate mortgages have proven to save borrowers the most money as part of a longer-term mortgage strategy. It makes perfect sense to explore this option with one of our experts today.
A variable-rate mortgage fluctuates with the nesto’s prime rate throughout your mortgage term. So, while your variable-mortgage payment will remain the same over your term, your interest rate may change based on market conditions. If the prime rate rises or falls, this impacts the amount of principal you pay off each month. When rates on variable mortgages drop, more of your payment is applied to your principal balance. And, conversely, if rates increase, more of your payment will go towards the interest portion of your mortgage.
Benefits of Variable-Mortgage Terms
Variable-rate mortgages appeal to homebuyers who are looking to save money throughout the term of their mortgage, and are willing to take on the risks associated with fluctuations in rates over time.
If you do go variable, if rates fall, more of your payment goes directly towards paying off the principal amount of your mortgage. This means you’ll pay less interest on your mortgage throughout your term – as well as the life of your mortgage if you stick with a variable rate.
It’s also 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.
Even if you’re more conservative when it comes to your finances, if you happen to be buying a home or renewing your mortgage term within a falling rate environment, this would be an opportune time to try out a variable-rate term.
Historical 5-Year Variable Mortgage Rates
Historically, 5-year variable mortgages have been related to the interest rate set twice every quarter by the Bank of Canada. Over the last 25 years, Variable mortgage rates have seen a general decline. However, at smaller time intervals, Variable rates have changed considerably, in both directions.
Source: Bank of Canada
Popularity of the 5-Year Variable-Mortgage Rate
The most popular variable-mortgage term is the 5 year. Historically, 5-year fixed rate mortgages are more popular than variable rate mortgages, by a considerable amount. Interestingly, according to historical data from the last 25 years, variable rate mortgages cost slightly less on average than fixed rate mortgages. Since variable rate mortgages are less risky for lenders, they generally come with a comparatively lower level of interest than fixed rate mortgages (however, this is not always the case). Ultimately, a 5-year variable rate mortgage is a popular mortgage solution that’s valued for its flexibility and comparatively low rates.
What drives changes in 5-year Variable mortgage rates?
While fixed rates remain the same for the whole of a mortgage term, variable rates change according to a benchmark set by the lender. This is generally based on something known as the Prime Rate plus or minus a certain amount. When the Bank of Canada’s key rate changes, the benchmark usually also moves in the same direction. This is because the lender now has to pay more (or less) to cover the cost of the capital used to fund your mortgage. Hence, if the BoC’s key rate rises, variable rates are likely to rise in turn.
Frequently Asked Questions
Want to know more about 5-year variable rate mortgages? Here are some of the most commonly asked questions Canadians are asking in 2022 about this type of mortgage.
What is a 5-year Variable mortgage rate?
Unlike a fixed-rate mortgage, which remains the same throughout the duration of the ‘term’ of a mortgage, a variable mortgage rate fluctuates over the course of the term. With a 5-year variable rate mortgage, your rate will change according to the Prime Rate plus a certain amount, as set at the beginning of your contract by your lender.
How are 5-year Variable rates set?
Generally, variable rate mortgages are set according to the Bank of Canada’s baseline interest rate. If the BoC’s interest rate rises or falls, your nesto’s Prime Rate will also likely rise or fall, and your rate will change accordingly. It’s important to note that with a variable rate mortgage, while the Prime may change, the relationship your rate has to the Prime will remain the same. In this way, variable rates are generally responsive to the BoC’s baseline interest rate over time. If baseline interest rates go up, your nesto’s Prime rate will likely go up, and subsequently your rate – since it is Prime, plus a certain marginal amount added on by your lender at the start of your mortgage term.
What are the differences between Fixed and Variable rates?
A variable rate means the interest rate can fluctuate for the duration of your mortgage term, according to changes in the lender’s Prime rate. A fixed rate on the other hand, remains the same throughout the duration of your term.
Variable rates are based on an underlying benchmark rate or index and are set by your lender – as nesto. A primary advantage of variable rates is that you could end up paying less than you would with a fixed rate, when variable rates are low. For example, if the government lowers its key interest rate, people with variable rates are likely to see their costs go down, since their mortgage rate is closely related to underlying interest rates. Variable rates are less risky than a fixed rate for your lender, and are therefore often significantly cheaper when rates are lower.
While variable rate mortgages are chosen for their flexibility and, arguably, their lower total cost over time, fixed rate mortgages are chosen for their security and predictability, since payments will remain the same throughout the duration of your term on a fixed rate mortgage. One major drawback of a variable rate mortgage is that if rates increase, so do your mortgage payments.
Is it a good idea to refinance a 5-year Variable mortgage?
If you’re currently on a 5-year variable mortgage rate, or you want to know more about refinancing if you choose this type of mortgage, it’s important to ask yourself why you’re refinancing. With all mortgage refinances, you will need to weigh up the costs involved, such as prepayment penalties, and any other fees involved with setting up a new mortgage. Ultimately, refinancing a variable mortgage can be a good idea if you think you can secure a better rate, and if the long term savings outweigh any short term costs.
Why compare 5-year Variable rates with nesto?
We help you get the best variable mortgage rates on the market, and our trained mortgage professionals can help you find the best solution for your needs. With nesto, not only can you find the best variable rates available, you can also get the support you need to make the right choice for your mortgage.
If I see a 5-year Variable mortgage rate I like, how do I lock it?
If you’ve found a variable rate for a 5-year mortgage term that you like, the next thing to do would be to contact your nesto mortgage advisor and submit a formal application once you understand all the particularities of our product. While your rate is important, the specific options and conditions related to your mortgage (like prepayment privileges) are also important to fully understand. Make sure to make an informed decision about what’s involved with your chosen mortgage before locking into a rate you like.
If you’re still looking for a 5-year variable rate mortgage, you can compare the best variable rates available to you, or get started by getting a quote based on your current financial situation, plus the kind of home you’re looking to buy, refinance, or renew.
Final Thoughts
Looking for a variable rate mortgage? If so, it’s important to survey the best possible rates out there based on your financial situation. 5-year variable rate mortgages can offer a good balance between term length and stability, and may be a good option when interest rates are low and expected to remain relatively low for a while. If you’re comfortable with some fluctuation in your mortgage repayments and don’t want to get locked into a fixed rate, then variable may be the right way to go. To get a sense of what you can afford in terms of repayments on a variable rate, check out our mortgage calculator. If you’re ready to explore your options, simply get in touch and one of our trained mortgage Advisors will help you find the best solution for your needs.