A variable rate mortgage Canada is a type of mortgage where the interest rate fluctuates based on changes in the lender’s prime rate, which is influenced by the Bank of Canada’s overnight lending rate. Many Canadians choose this option due to its historically lower rates compared to fixed-rate mortgages. This type of mortgage allows borrowers to take advantage of lower interest rates when market conditions are favourable, but it also comes with the risk of rising rates in an unpredictable economic climate.
What is the Current Variable Mortgage Rate in Canada?
As of February 2025, the current variable mortgage rate in Canada varies depending on the lender. However, it is important to note that a variable rate is calculated as a Prime Rate – Discount, rather than a standalone figure.
| Lender | Prime Rate (%) | Discount (%) | Actual Variable Rate (%) |
| Canadian Lender | 5.20 | -0.50 | 4.70 |
| Big 6 Bank | 5.20 | -0.45 | 4.75 |
| Alterna Savings | 5.20 | -0.40 | 4.80 |
| Meridian Credit Union | 5.20 | -0.35 | 4.85 |
| CIBC | 5.20 | -0.30 | 4.90 |
| TD Bank | 5.20 | -0.25 | 4.95 |
Note: Variable mortgage rates are determined as Prime Rate – Discount. The Prime Rate is currently 5.20%, and discounts vary based on lender competition and borrower qualifications.
How Variable Rate Mortgages Work in Canada
Canada Variable Rate Mortgage: Key Features
- Fluctuating Interest Rates – The interest rate changes based on the Bank of Canada’s prime rate, meaning monthly payments could increase or decrease depending on market conditions.
- Lower Initial Rates – Variable rates tend to start lower than fixed rates, making them attractive to budget-conscious borrowers looking for initial savings.
- Potential for Savings – If interest rates remain stable or decrease, borrowers save money compared to a fixed mortgage over the term of their loan.
- Rate Discounts – Lenders offer discounts off their prime rate to attract borrowers, meaning that some variable rate mortgages can be even lower than advertised rates.
- Conversion Options – Some lenders allow switching to a fixed-rate mortgage during the term, providing flexibility for those concerned about future rate increases.
Canada Variable Mortgage Rates vs. Fixed Mortgage Rates
The choice between a variable rate mortgage Canada and a fixed-rate mortgage depends on market conditions and risk tolerance. Fixed rates provide stability, while variable rates can offer savings if interest rates decline.
| Mortgage Type | 2020 | 2021 | 2022 | 2023 | 2024 |
| 5-Year Variable | 0.99% | 0.85% | 0.85% | 5.30% | 4.20% |
| 5-Year Fixed | 1.39% | 1.39% | 1.39% | 4.29% | 4.50% |
What Influences Canada Variable Rate Mortgage Trends?
Several factors impact Canada variable mortgage rates, including:
- Bank of Canada Rate Decisions – Adjustments to the overnight lending rate affect prime rates across the country.
- Inflation Trends – Higher inflation can lead to rate hikes, while lower inflation may prompt cuts.
- Economic Growth – Strong GDP growth can result in increased borrowing costs as demand for loans rises.
- Global Financial Trends – Changes in U.S. Federal Reserve policies and global markets influence Canadian rates, especially through bond yields and international trade policies.
Will Variable Mortgage Rates Go Down in 2025?
The Bank of Canada has signalled a potential slowdown in rate cuts for 2025, but factors like inflation, GDP performance, and U.S. policy changes could influence future rate movements. Analysts predict that rates may stabilize rather than continue dropping at the same pace seen in 2024.
Comparing the Best 5-Year Variable Mortgage Rate in Canada
A 5-year variable mortgage rate in Canada is one of the most popular mortgage choices. Here are some sample offers based on the corrected variable rate methodology:
| Lender | Discount (%) | Actual Rate (%) | Monthly Payment ($400,000 Mortgage) |
| Canadian Lender | -0.50 | 4.70% | $2,080 |
| Big 6 Bank | -0.45 | 4.75% | $2,095 |
| Alterna Savings | -0.40 | 4.80% | $2,110 |
| Meridian Credit Union | -0.35 | 4.85% | $2,125 |
| CIBC | -0.30 | 4.90% | $2,140 |
Should You Choose a Variable Rate Mortgage Canada?
| Pros | Cons |
| Potential for lower interest costs over time – If rates decrease, your mortgage payments could become more affordable.Flexibility to switch to a fixed rate – Most lenders allow conversion to a fixed rate mortgage if market conditions change.Lower initial payments compared to fixed rates – Borrowers often enjoy reduced monthly payments early in the term. | Rate fluctuations can impact budgeting – Uncertainty in monthly payments may be stressful for some borrowers.Uncertainty in long-term costs – Rates could rise unexpectedly, increasing borrowing expenses. |
When Should You Switch from Variable to Fixed Mortgage?
If you anticipate a sharp increase in interest rates or prefer stability in your mortgage payments, switching to a fixed mortgage may be beneficial. Consulting a mortgage expert can help determine the best course of action based on market trends and personal financial goals.
Is a Variable Rate Mortgage Right for You?
A variable rate mortgage Canada can be a great option for borrowers comfortable with rate fluctuations and looking for potential savings. Given the recent rate trends and economic conditions, it’s essential to assess your financial situation and consult mortgage professionals before making a decision.
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