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Variable mortgage rates at Canada’s Big 6 banks
Click on a bank’s name to see a complete rundown of its posted and discounted mortgage rates.
| RBC | 4.950% |
| TD | 5.19% |
| BMO | 4.95% |
| CIBC | 4.95% |
| Scotiabank | 5.90% |
| National Bank | 4.95% |
Variable mortgage rate news: December 2024
As expected, the Bank of Canada slashed its overnight rate by another 50 basis points on December 11, 2024. Once the cut is absorbed by the nation’s lenders, variable mortgage rates will decrease by 0.5%.
That will bring the lowest advertised variable rates down to around 4.3% at some mortgage brokerages. Variable rates remain closer to 5% at the country’s biggest banks. Another rate cut could be in the cards for January, when the Bank is scheduled to make its next overnight rate announcement.
The Bank’s most recent cut won’t be a game-changer for home buyers or homeowners paying off a variable-rate mortgage. For buyers, it might increase the amount they can borrow by $30,000. For homeowners, it might shave around $100 of their monthly mortgage payments.
Will variable mortgage rates come down more in 2025?
The Bank of Canada reduced its overnight rate five times in 2024, capping the year off with two 50-basis point cuts. It might not be quite as aggressive in 2025.
In the first half of 2025, the Bank might feel comfortable shaving another 50 basis point off the overnight rate, which would bring variable mortgage rates down by another 0.5%. Larger cuts might be in play depending on the state of the economy, but the Bank needs time to gauge the impact of its previous actions before uncorking any further supersized cuts.
Making your own variable mortgage rate forecast
If you want to carry out a little DIY mortgage rate forecasting, keep an eye on Canada’s inflation rate.
If inflation is trending upward, you can generally expect the Bank of Canada to respond by raising its overnight rate. When that happens, variable mortgage rates also increase. If inflation is declining, the Bank may choose to lower the overnight rate, which will result in lower variable rates.
The economy can be a tricky thing to read, and forecasts are frequently wrong, so never assume you know exactly where rates are heading.
Ask yourself these questions to see if a variable mortgage rate right for you
Variable mortgage rates have historically been lower than fixed rates, but there’s a lot more to consider when deciding whether a variable rate is the right choice for your mortgage, including:
- Can you live with the risk of higher rates? If variable rates spike during your mortgage term, you could wind up paying more in interest and taking longer to pay off your mortgage in full.
- How do you value the option to switch rate types? You can generally switch a variable rate to a fixed rate mid-term, which can help if fixed rates are static or dropping when variable rates are rising. A fixed rate can’t be converted to a variable.
- What are the odds you’ll move before your term is up? If you have a variable-rate mortgage, you might only be able to port it to a new property if you convert it to a fixed rate first.
- Think you’ll make big prepayments? Breaking a variable-rate mortgage to sell or refinance a home generally involves a prepayment penalty worth three months’ interest. Breaking a fixed-rate mortgage can trigger more substantial penalties.
Nerdy tip: Variable mortgage rates are generally a better option for homeowners who value flexibility. You’ll be able to switch to a fixed rate if variable rates rise more than you’re comfortable with. If you think you might sell your home during your mortgage term, you’ll only pay three months’ interest as a prepayment penalty on a variable rate.
Is it a good idea to get a variable-rate mortgage now?
The Bank of Canada has lowered the overnight rate four times since June, and they will contemplate an additional cut in December. However, variable rates are still higher than today’s lowest three- and five-year fixed rates. Variable mortgage rates are likely to remain both more expensive and, thanks to the mortgage stress test, harder to qualify for at least though the end of this year.
Five ways to get the best variable mortgage rate
1. Boost your credit score
The best mortgage rates generally go to creditworthy borrowers, meaning those with a solid credit score of 680 and higher. Lenders perceive borrowers with high credit scores as lower risk.
Regularly paying your bills and credit card balances in full is one way to keep your credit score in good standing.
2. Maintain low debt service ratios
Lenders take a careful look at two debt service ratios when deciding how much to loan you and at what interest rate.
- Your gross debt service (GDS) ratio, the percentage of your pre-tax household income that goes towards housing costs, should not exceed 39% of your yearly gross income.
- Your total debt service (TDS) ratio, which includes GDS and any other debts you are carrying, should not be more than 44% of your pre-tax household income.
3. Increase your down payment
Saving a down payment isn’t easy, but amassing a larger one can work wonders for your mortgage.
You’ll borrow less, which will decrease your overall mortgage costs. Proving you can save money and prioritize homeownership might signal to lenders that you’re worthy of a lower interest rate.
4. Compare mortgage offers from different lenders
Canada’s mortgage market has a healthy amount of choice. Take advantage of the options out there — Big Six banks, alternative lenders, credit unions and trust companies — and compare the rates and mortgage products available to find the best deal.
In addition to evaluating interest rates, look at each product’s terms and conditions to find the one that best suits your needs. Working with a mortgage broker can make these comparisons more manageable.
5. Negotiate
You should always try to negotiate a lower rate than what your lender initially offers. Use the information you gather when comparing rates as leverage
Keep in mind that variable mortgage rates are based on a lender’s prime rate, so there might not be as much room to negotiate as there would be if you were discussing fixed rates.
Variable mortgage rate basics
What is a variable mortgage rate?
A variable mortgage rate is one of two main interest rate types in Canada. Unlike a fixed mortgage rate, which stays the same for the entirety of a mortgage term, a variable rate might increase or decrease several times before a term ends.
Why would someone choose a mortgage rate that can increase? In Canada, variable mortgage rates have generally been lower than fixed rates; when they are, they’re easier to qualify for. Variable rates also offer other strategic advantages over fixed rates, like switchability and lower prepayment penalties.
What determines variable mortgage rates?
Variable mortgage rates are typically based on a lender’s prime rate. When the prime rate rises or falls, a lender’s variable rates move in the same direction, and to the same degree.
Prime rates respond to the Bank of Canada’s overnight rate, which is the interest rate banks pay to borrow money from each other. When the Bank’s overnight rate increases or decreases, prime rates follow suit.
The overnight rate is a tool the Bank uses to control inflation. If inflation is running hot, the Bank raises the overnight rate to tamp down economic activity. If the economy is too sluggish, the Bank will lower the overnight rate to spur borrowing and spending.
Types of variable-rate mortgages
There are two different types of variable rate mortgages in Canada:
- Fixed-payment variable-rate mortgages. The size of your mortgage payment doesn’t change when your rate is adjusted. Instead, the percentage of your payment that goes toward interest either increases or decreases, which also affects how much is applied to the principal.
- Variable-payment variable-rate mortgages. The actual amount of your monthly mortgage payment can rise or fall, making this mortgage type particularly risky in a rising-rate environment.
Pros and cons of variable mortgage rates
Pros:
- Lower rates. Historically, variable rates have been lower than fixed mortgage rates.
- Lower prepayment penalties. Compared to fixed-rate mortgages, variable–rate mortgages charge lower penalties if you prepay too much of your mortgage or break your mortgage contract in some other way.
- Switchability. If variable mortgage rates are rising and you’re afraid of being able to maintain your payment schedule, you may be able to switch to a fixed rate of interest for the remainder of your mortgage term.
Cons:
- Unpredictability. If variable mortgage rates spike, your mortgage could become unaffordable.
- Smaller prepayment penalties still sting. If you have to break a variable-rate mortgage because of financial difficulties, paying a penalty equal to three months’ interest could be painful.
- No portability. Your lender may not allow you to port a variable-rate mortgage unless you convert it to a fixed-rate mortgage. When making the switch, you’ll be subject to your lender’s current mortgage rates, which may be higher than you can afford.
Historical variable mortgage rates in Canada
Alternatives to variable-rate mortgages
If you aren’t comfortable with the risks associated with variable mortgage rates, there are other options to consider.
Choose a fixed rate
Even though fixed mortgage rates are typically higher than variable rates, you’re purchasing peace of mind in exchange for the additional interest costs.
With a fixed-rate mortgage, your interest rate doesn’t change for the length of your mortgage term. If you opted for a three-year fixed mortgage rate in 2023, for example, your payments would stay the same until 2026.
Even if rates go through the roof, you won’t have to worry about your mortgage payment being affected — until you renew your mortgage.
Choose a hybrid mortgage
A hybrid mortgage contains multiple mortgage types rolled into a single mortgage product. It might include a variable-rate component, a fixed-rate component and a line of credit. Because of the moving parts involved, hybrid mortgages may be better for experienced borrowers.
Frequently asked questions about variable mortgage rates
Variable mortgage rates started decreasing in June 2024, shrinking each time the Bank of Canada reduced its overnight rate. After five consecutive cuts to the overnight rate in 2024, the Bank is expected to continue bringing variable rates down in 2025, though not at the same pace.
Variable mortgage rates remain elevated, even after the Bank of Canada’s fifth overnight rate cut in December. Getting a variable rate below 5% will probably require reaching out to a broker to find you a better deal than what Canada’s biggest banks are offering.
Whether you’re applying for a variable- or fixed-rate mortgage, you’ll need to pass the mortgage stress test, which requires qualifying at the higher of either 5.25% or the rate you’ve been offered plus 2%.
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