Find the best 5-year variable mortgage rate

March 12, 2025 Bank of Canada announcement update

In its second announcement of the year, the Bank of Canada (BoC) reduced the Overnight Lending Rate by another 0.25%. This marks the seventh consecutive rate cut since June 2024, lowering the benchmark rate from the previous high of 5% to 2.75% currently.

• The decision was largely expected, driven by rising uncertainty tied to ongoing U.S. tariff threats. Despite Canada entering 2025 with robust GDP growth and inflation near the 2% target, persistent trade volatility prompted the BoC to further cut rates.
• Following this announcement, the prime rate at most lenders will decrease to 4.95%, lowering borrowing costs for those with variable-rate mortgages and home equity lines of credit (HELOCs). On an average-priced Canadian home, variable mortgage holders can expect monthly payments to drop by approximately $84.
• Fixed mortgage rates are influenced by bond yields rather than the BoC’s benchmark rate. Canada’s five-year government bond yields recently dropped to around 2.6%, allowing lenders to offer more competitive fixed rates. The lowest five-year fixed mortgage rate currently available is 3.89%, a level unseen since 2022.
• Savers holding high-interest savings accounts (HISAs) and Guaranteed Investment Certificates (GICs) will experience lower returns due to this rate cut.
• Additional interest rate cuts could follow in 2025 if trade tensions persist. However, Bank of Canada Governor Tiff Macklem cautioned that these rate cuts alone may not fully counter the economic impacts of ongoing trade tensions, underscoring the need for fiscal measures from government.

February 2025: Mortgage market update

The housing market in Canada saw a rather quiet year in 2024, as buyers stayed on the sidelines in anticipation of lower rates. With the Bank of Canada having implemented its sixth policy rate cut and further cuts broadly expected, home sales have finally started to pick up.  

Variable mortgage rates have fallen in proportion to the Bank of Canada’s 15-points January rate cut, and, with more rate cuts anticipated in 2025, further downward pressure on rates is on the horizon. Fixed rates are tied to bond yields, which have tumbled in the wake of the Bank of Canada’s rate cuts. As a result, fixed mortgage rates have decreased slightly as well. 

Overall, though, when looked at from a historical perspective, both fixed and variable mortgage rates are currently elevated. Anyone shopping for a mortgage rate in Canada today should be aware of the economic factors below.

• Real estate update: On February 18, 2025, the Canadian Real Estate Association (CREA) reported that Canadian housing activity entered the new year on a gentler slope. A total of 26,650 properties sold in January, down -3.3% from December but 2.9% higher year-over-year, reflecting both a seasonal pullback and lingering optimism compared to 2024. Sellers brought 83,450 new listings to market, marking an 11% monthly and 22.7% annual jump. This, in turn, pushed months of inventory up to 4.2 and helped keep price growth in check. The national average increased by 1.1% year-over-year to $670,064, while the MLS Home Price Index remained virtually unchanged from December. Meanwhile, the sales-to-new-listings ratio (SNLR) fell to 49.3%, settling in the lower end of balanced territory and offering buyers modest negotiating leverage. CREA Chair James Mabey notes that looming trade uncertainties with the U.S. and potential Bank of Canada rate cuts could quickly alter the market’s trajectory, with lower interest rates encouraging some buyers and recession fears prompting others to wait on the sidelines.

Read more- Canadian real estate sales drop in January due to tariff fears

• CPI update: According to Statistics Canada’s latest Consumer Price Index (CPI) report, Canada’s annual inflation rate climbed to 1.9% in January 2025, up from 1.8% in December 2024. The report highlights that the GST tax holiday, from December 14, 2024, to February 15, 2025, helped soften the headline inflation figure by reducing prices on items like alcoholic beverages, restaurant meals, and children’s products. Without this tax break, underlying inflation would have reached about 2.6%, a notable rise from September’s 1.5%. Mortgage interest costs, which constitute almost 30% of the CPI, moderated to a 10.2% year-over-year increase following recent rate cuts by the Bank of Canada. Rent prices also showed a slight improvement, decreasing by 0.1% from December, marking the first monthly drop since 2023, although they remain 6.3% above 2024 levels. Core inflation measures, specifically the CPI trim and CPI median, both edged higher to 2.7% from 2.5% and 2.6%, respectively. Economists expect the Bank of Canada to pause further rate cuts at its next policy meeting on March 12. Meanwhile, the potential threat of new U.S. tariffs on Canadian exports continues to loom, adding uncertainty to the economic outlook and potentially pushing prices higher.

Read more- Canadian CPI ticks back up to 1.9% in January

Forecast for 2025 housing market

The Canadian Real Estate Association (CREA) has released its 2025 housing market outlook, highlighting a recovery driven by pent-up demand, easing borrowing costs, and an influx of spring listings. The forecast predicts 532,704 residential property sales in 2025, reflecting an 8.6% increase from 2024 and surpassing the previously estimated 6.6% growth. This positive trend is expected to continue in 2026, with transactions set to rise another 4.5% to 556,662. The national average home price is projected to grow 4.7% year-over-year to $722,221 in 2025, with a further 3.3% increase to $746,379 in 2026. Regional dynamics might also vary, with British Columbia and Ontario anticipated to see significant sales growth due to lower current sales levels and abundant supply. Meanwhile, Alberta and Saskatchewan are expected to experience demand primarily reflected in rising prices. 

Canadian mortgage reform update

On September 16, 2024, the federal government announced sweeping changes to mortgage qualification rules for first-time home buyers, as well as those purchasing newly-constructed homes.

As of December 15, 2024:

• 30-year amortizations will be available for all first-time home buyers, regardless of whether they have an insured mortgage. These extended amortizations are also available for any purchase of new construction.
  
  
• The maximum purchase price for an insured mortgage (where less than 20% down is paid) will be increased to $1.5 million, from the current $1 million.
  

These are some of the most impactful mortgage reforms announced since 2012, and are anticipated to increase first-time home buyers’ affordability and access to the housing market. 

Learn more about these new mortgage rule changes on the Ratehub.ca blog

5-year variable mortgage rates: Quick facts

• Variable mortgage rates fluctuate with the prime lending rate.
• Variable rates are typically stated as "prime plus or minus a percentage".
• Some 5.36% of all mortgage requests made to Ratehub.ca from January - December 2023 were for 5-year variable-rate mortgages.
• 5-year fixed mortgage rates are driven by 5-year government bond yields.
• 23% of consumers opted for a variable-rate mortgage in 2024, down from 27% in 2023. (Source: 2024 CMHC Mortgage Consumer Survey)

Historical 5-year variable mortgage rates

Checking historical mortgage rates is a great way to properly understand which mortgage terms attract lower rates and whether rates are especially high or low at any given moment. Here are the lowest 5-year variable rates of the year in Canada for the last several years, compared to several other types of mortgage rates.

Source: Ratehub Historical Rate Chart

The popularity of 5-year variable mortgage rates

Although fixed-rate mortgages are more popular, according to Mortgage Professionals Canada, 25% of Canadian mortgage-holders had variable-rate mortgages at the end of 2022, making it the second most popular type of mortgage.

Historically, fixed rates are generally more popular, however, in the wake of the COVID-19 pandemic, the Bank of Canada cut its target overnight lending rate in March 2020, which caused the prime rate to go down. As a result, variable-rate mortgages experienced a surge in popularity; as mentioned above, roughly 25% of all mortgages in Canada at the end of 2022 were variable-rate mortgages, in contrast to 20% in 2019. However, as variable-rate mortgages have climbed to rates significantly higher than fixed-rate mortgages in the wake of multiple Bank of Canada rate hikes over the course of 2022, their popularity has waned considerably in 2023. While some 26% of all rate inquiries to Ratehub.ca in 2022 were for 5-year variable rates, they accounted for just 5.36% of all rate requests to Ratehub in 2023. Moreover, according to the 2024 CMHC Mortgage Consumer Survey, 23% of consumers opted for a variable-rate mortgage in 2024 (down from 27% in 2023). The table below, sourced from the same survey, shows the popularity of fixed-rate mortgages in 2024 among the four main categories of people who contracted mortgages.

A 5-year mortgage term is the most popular duration. It sits right in the middle of available mortgage term lengths, between one and 10 years, and, thus, its popularity reflects a risk-neutral average. It also tends to be heavily promoted by major lenders. A further breakdown of mortgage terms shows that about 80% of mortgages have terms of five years or less.

What drives changes in 5-year variable mortgage rates?

As previously mentioned, the 5-year variable mortgage rate will fluctuate with any movements in the prime lending rate, which is the rate at which banks lend to their best and most credit-worthy customers. The variable mortgage rate is typically stated as prime plus/minus a percentage discount/premium.

Canada’s prime rate is influenced primarily by economic conditions. The Bank of Canada adjusts it depending on the state of the economy, determined by various factors in employment, manufacturing, and exports. Together, these shape the inflation rate. When inflation is high, the Bank of Canada must act to avert an over-stimulated economy. They will increase the prime rate to make the act of borrowing money more expensive.

Conversely, in cases where inflation is low, the Bank of Canada will decrease the prime rate to stimulate the economy and improve the attractiveness of borrowing. The discount/premium on the prime rate applied to the variable mortgage rate is set by the banks, based on their rate strategy and desired market share. 

The bottom line: Should you get a 5-year variable rate?

As long as you're comfortable with risk and understand that variable rates can fluctuate throughout your term, then a 5-year variable rate is a reasonable choice. Since variable rates do have the inherent risk of rate increases, make sure you have enough money in your budget to cover a higher mortgage payment if rates increase.

If you're still not sure about what mortgage product is right for you, it's a good idea to speak to a mortgage broker. Consultations are free, and you'll leave with expert advice, personalized to you.

For more information, check out these helpful pages! 

• Best Mortgage Rates in Canada
• 5-Year Fixed Mortgage Rates
• Variable or Fixed Mortgage Rates
• Amortization
• Mortgage Term vs. Amortization
• Is a 5-Year Fixed-Rate Mortgage Term Right For You?
• Porting and Assuming Your Mortgage