5-year Variable Rate Mortgage

By Connie Graham and Briana Hennigan |

Best Mortgage Broker Edmonton

Last month my blog post was about 5-year fixed-rate mortgages, this month I’d like to explain the features of a 5-year variable or adjustable-rate mortgage.

This mortgage gives you a discount off of the Prime lending rate which is decided by the Bank of Canada. This means that if the Prime lending rate changes so does the rate and payment you pay on your mortgage.

  1. This is also a closed mortgage, however, the payout penalty is the cheapest if you were to break your mortgage before your term is up, it is only 3 months interest which can be thousands of dollars less than a fixed rate penalty.
  2. On average, 2 out of 3 Canadians break their mortgage mid-term so if you are planning a change in the near future this could be a great option for you, allowing you to have more flexibility.
  3. If the prime rate does increase, lenders allow you to exercise an option to “lock-in” to a fixed rate as long as you choose a term equal to your remaining term or longer.
    Prime rate doesn’t fluctuate monthly, it only changes when the Bank of Canada, which meets every 2 months, reviews the Canadian economy and decides to change the rate of interest. If the economy is strong, they will increase it, if the economy is struggling, they will decrease the rate. Currently, the prime rate is 2.45% and because of the pandemic, the Bank of Canada is unlikely to increase Prime Rate until 2023. Current discounts on variable-rate mortgages are approximately prime - 1% or 1.45%
    Your payment could change over the 5-year term if the prime lending rate were to increase or decrease. If it were to increase by .25, you would pay approximately $13/month more per $100,000 so that works out to $39/month on a $300,000 mortgage.

Here’s some history of the variable rates in the past 10 years:

  • 2010 - 2015 - the rate stayed the same
  • 2015 - it was lowered twice that year by .15 (January and July)
  • 2017 - it was increased twice by .25 (July and September)
  • 2018 - it was increased 3 times by .25 (January, July, October)
  • 2020 - it decreased 3 times by .50 (April and March 11 and March 18) due to pandemic

I will help you compare your options and decide which option is best for you depending on your circumstances, goals, and tolerances.

Contact me for the best 5 year variable rate mortgage option for you.