Current 5-Year Variable Mortgage Rates in Canada

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5-year variable mortgage rates in more detail

Five-year variable-rate mortgages can be especially attractive when market interest rates are low. While five-year fixed-rate mortgages have historically been more popular in Canada, variable-rate mortgages offer the potential for savings for borrowers who can tolerate some interest-rate fluctuation over a five-year term. They do, however, come with trade-offs that are important to understand before you sign a mortgage contract.

Below is an overview of how five-year variable mortgage rates work and how to decide whether they suit your financial situation. Also consider how they compare with five-year fixed mortgage rates when weighing your options.

What is a five-year variable mortgage rate?

A five-year variable-rate mortgage is a mortgage with a five-year term, meaning the contract and its conditions remain in effect for five years. In Canada, mortgage terms can range from six months to 10 years, with five years being the most common choice.

With a variable-rate mortgage, the interest rate can change during the term because it is tied to your lender’s prime rate. By contrast, a fixed-rate mortgage locks in a single interest rate for the entire term. Variable rates are often stated as “prime plus” or “prime minus” a percentage. For example, if the lender’s prime rate is 2.5% and your mortgage is priced at “prime plus 0.5%,” your interest rate will be 3.0%. If the prime rate rises to 3.0%, your rate would increase to 3.5%.

The way a rate change affects your finances depends on the type of variable mortgage you select. On some variable-rate products, your regular monthly payment stays the same while the split between interest and principal shifts: when rates fall, more of your payment reduces principal; when rates rise, more goes to interest. If rates increase and payments do not, amortization can lengthen and you may pay more interest over the life of the loan.

Other variable-rate mortgages have adjustable payments, sometimes called adjustable-rate mortgages. With these, monthly payments change when the interest rate changes. The payment amount is determined by the relationship between the lender’s prime rate and the margin specified in your mortgage agreement.

Good news: The Bank of Canada cuts interest rates (again)

On June 4, 2025, the Bank of Canada (BoC) held its benchmark rate at 2.75%. The next interest rate announcement will take place on Wednesday, July 10, 2025.

How are five-year variable mortgage rates determined in Canada?

Variable mortgage rates are closely linked to a lender’s prime rate, which itself is influenced by the Bank of Canada’s overnight rate. The Bank adjusts its benchmark rate in response to economic conditions—raising it to help bring down inflation or lowering it to stimulate the economy. When the Bank raises the overnight rate, banks typically increase their prime rates because borrowing costs rise for them. As prime rates change, variable mortgage rates follow suit.

Historically, variable rates have often been lower on average than fixed rates, which can lead to long-term savings for variable-rate borrowers. That said, when the Bank raises its benchmark rate to curb inflation or stabilize the economy, that can increase borrowing costs for variable-rate mortgage holders.

Mortgage professionals often caution that the very low rates seen in recent years may not persist forever. If economic conditions normalize and the Bank raises rates, borrowers on variable-rate mortgages could see higher costs. Prospective borrowers should consider the possibility of rising rates when choosing between fixed and variable options.

The pros and cons of five-year variable-rate mortgages

Pros to consider:

Potential cost savings: Over time, variable rates have often been lower than fixed rates, which can reduce total interest expenses.
Greater prepayment flexibility: Variable-rate mortgages often allow more generous prepayment options without penalties, enabling borrowers to pay down principal faster.
Option to convert: Many lenders permit conversion from a variable rate to a fixed rate without incurring a penalty, providing flexibility if market conditions change.

Cons to consider:

Less predictability: Rates can rise, making budgeting more difficult for borrowers who prefer steady, predictable payments.
Potentially higher long-term costs: Even if monthly payments stay the same initially, rate increases typically raise the interest portion of payments and can increase overall interest paid over the mortgage lifetime.

Is a variable-rate mortgage better?

Choosing a variable-rate mortgage depends on your financial situation and your tolerance for change. If a household is on a very tight budget and would struggle with higher payments, a variable-rate mortgage might not be appropriate. Conversely, if you have room in your budget and can absorb potential rate increases, a variable-rate mortgage could offer savings.

Variable-rate mortgages can provide significant savings over a five-year term, but they require comfort with some uncertainty. If rate swings would cause you anxiety or financial strain, a fixed-rate mortgage may be a better fit. There’s no one-size-fits-all answer—pick the option that matches your financial resilience and peace of mind.

Choosing a closed versus open variable-rate mortgage

Variable mortgages can be either open or closed. An open mortgage offers maximum flexibility to make extra payments or pay off the loan early without penalties, but typically comes with a higher interest rate. A closed mortgage usually carries a lower interest rate in exchange for stricter limits on prepayments and early repayment options.

If you expect to stay in your home for at least five years and do not anticipate large lump-sum payments, a closed variable-rate mortgage may provide the best cost savings. If you need full flexibility to make large prepayments or pay off the mortgage early, an open mortgage could be worth the higher rate.

Should you choose a five-year variable mortgage rate?

When deciding on a variable mortgage rate, consider potential savings, the risk of rising interest rates, and your tolerance for payment fluctuations. Variable rates remain an attractive option for many borrowers, but the right choice depends on your ability and willingness to manage possible changes in rates and the broader economy.