Best Variable Mortgage Rates Ontario

Compare of 20+ of the best variable mortgage rates Ontario from top mortgage lenders.

Also be sure to check out our 2024 variable mortgage rate review just below, to see why the variable rate has the fastest growing market share in 2024. By looking at advantages and risks, and discussing the most popular questions about the variable rate, you’ll see if it’s the best suited mortgage for you as we move into 2025. 

Why is the variable rate mortgage gaining popularity the fastest in 2024?

Put simply, the variable rate mortgage is a higher risk for higher potential reward strategy. As the Bank of Canada has started aggressively cutting rates in 2024, and is projected to continue cutting into 2025, there is a good chance that the variable rate will lead to significant interest rate savings.

More specifically, the variable mortgage rate is drawing more attention and approvals from those who:

• Are seeking further potential for rate drops in 2025. In other words, borrowers who want more flexibility for when rates drop.
• Want to potentially lock into a fixed rate once the Bank of Canada has ended its rate cuts, and fixed rates are potentially in the 3% range.
• Who want predictability with a 3 month interest rate penalty, and do not want a complex, expensive and potentially cost prohibitive breakage penalties that can be seen with fixed mortgage rates.

From a Risk Perspective, Variable Mortgage Rates Are Best For Those Who…

• Are comfortable investing in more aggressive investment portfolios with more volatility and higher potential returns.
• Homeowners who do not have a ‘maximum mortgage’ and that have ample cash flow to comfortably support a potentially higher payment. More on this below…

The Big Variable Mortgage Rate Question to Ask Yourself

The major consideration for variable mortgage rate risk is your ability to afford a potentially more expensive payment if rates increase. So the question is:

Is the payment a high percentage of my take home income? 

If your income provides for more cash flow relative to the mortgage payment and size,  this reduces your personal financial risk.

If the interest payment on a smaller variable mortgage were to increase, this may not be detrimental to the overall financial picture. Likewise, even if the mortgage was larger but income could more easily withstand a higher payment, this better positions the borrower to take on more risk.

However, if the mortgage approval is already at maximum and the mortgage is already by far the central expense in the financial picture, then the added risk of a variable rate could be overwhelming if rates dont trend as hoped. This is clearly being seeing already, in this current market. 

In cases where financial pictures require more stability, the risks of a variable rate mortgage are magnified and this should be considered alongside your situation. 

Maybe now is the right time for a variable mortgage rate. However, if not, perhaps in a few years, you will be better positioned and the economy less extreme too.

Lower Penalty – A Key Advantage of a Variable Rate

For most variable mortgages, the penalty is calculated simply as 3 months of interest. At any given time the penalty is calculated like this:

1. Rate x total amount owing =

       2. Then Divide this by 12 months to get the monthly interest amount paid

       3. Then multiply this by 3 months to determine the 3 month interest penalty at the time

For example:

Rate is 6.5% x $100,000 owing = $6,500 of interest for the year

Divided by 12 months = $542 of interest per month

Multiply by 3 = $1,626 is the 3 month interest penalty to break the variable rate mortgage

When rates drop, there will be a lot of people who want or need to break their 5 year fixed rate mortgage. If market rates are much lower at the time of breaking, then a complex and highly unfavourable ‘Interest Rate Differential Penalty’ would apply to the fixed rate, which could be massive. 

We have seen fixed rate penalties easily reaching into the $15,000 – $20,000 range when market rates drop. This would not likely be the case on fixed rate mortgages and it is why many mortgage professionals consider the more predictable and lower penalty to be the key benefit of the variable rate mortgage. 

One Year Fixed Rate Vs Variable Rate Mortgage

Comparing the one year fixed rate to a variable rate mortgage is a popular question.

Both mortgage types offer more flexibility based on how the mortgage rate market moves and both mortgage rates are priced fairly closely, with the 1 year fixed mortgage rate priced slightly higher in 2024. 

We believe the variable rate offers more flexibility and potential for savings than the 1 year fixed rate because rates are projected to fall over 2024 and into 2025.

Why hold a higher 1 year fixed rate when Bank of Canada Rate cuts are imminent? Even if the Bank of Canada doesn’t cut, you’d still pay a more interest in a 1 year rate. The Bank of Canada would haven to increase rates for you to lose with a variable rate, which is extremely unlikely in 2024.

The same logic applies to a 2 year fixed rate, because it is often higher than a variable rate. However 3-5 year fixed rates are lower and have the advantage of protecting from eventual variable pride risk 2+ years in the future.

Popular 5-Year Variable Rate Questions

How is the variable rate mortgage priced?

The variable rate is based on the Bank Prime Rate, which is currently 5.95%. When we talk of ‘prime minus’ we are looking at how much discount you, the borrower, get taken off this Bank Prime Rate. For example, Prime minus 1% would currently be 4.95%. 

The Bank Prime is derived from the Central Bank of Canada’s overnight lending rate, which is set by the Central Bank 10 times per year. The Central Bank rate is 2.2% lower than the bank prime rate. This 2.2% difference is kept constant. So, as we see the Central Bank move rates up and down, we can easily calculate the Bank Prime and discounted variable mortgage rate.

Will the variable rate go up or down in 2025?

The financial markets and economists currently project the variable to drop by approximately 1% in 2025.

How do I get the best variable rate mortgage?

The best variable rate can be selected based on online mortgage comparisons, contacting mortgage brokers for quotes, and also ensuring the best fine print in the term without any costly surprises. Typically, an hour or so of work can result in many thousands of dollars in savings over the years.

Can I lock in a Variable rate into a fixed rate?

Yes, most variable mortgage rates can be locked in to a fixed rate during the term.