Variable Mortgage Rates Ontario

Compare of 20+ of the best variable mortgage rates Ontario just below. We also run 5 simulations on possible variable rate outcomes over the next 5 years, and compare the results to 5 year fixed rates.

Current Variable Mortgage Rates in Ontario

Brief Overview of Variable Mortgage Rates

• According to our rate simulations (seen below)  current 5 year variable mortgage rates could save you more if the prime rate drops according to current economic expectations/consensus.
• Our simulations (seen below) also show that savings with the best variable mortgage rate could be much greater if the economy/ inflation weakens sooner than, and to a greater extent than currently expected. However, a fixed rate could lead to more interest rate savings if inflation gains momentum or the economy remains more resilient.
• Historically, the 5 year variable mortgage rate leads to greater savings than fixed rates. However, there are shown to be periods and mortgage strategies where fixed rates lead to more savings.

Variable Mortgage Rates Are Best For…

• Those who are comfortable with the potential for further rate increases, because of the potential for rate drops in 2024- onwards. In other words, borrowers who want more flexibility for when rates drop.
• Those who are comfortable investing in more aggressive investment portfolios may be better suited for the variable rate mortgage.
• Homeowners who do not have a ‘maximum mortgage’ and that have ample cash flow to comfortably support a potentially higher payment.
• Borrowers who want predictability with a 3 month interest rate penalty, and do not want a complex and potentially prohibitive penalty as can be seen with fixed mortgage rates.

5 Variable Mortgage Rates Projections Compared to 5 Year Fixed

Below, we present 5 variable mortgage rate projections/simulations and compare them to the 5 year fixed rate.

Since the variable rate is based on the Bank of Canada’s prime lending rate, the following hypothetical rate paths refer to the movement of the prime rate. 

The first projection includes a current January 2024  Bank of Canada interest rate forecast.

We will see that in some cases, you will be better off with the variable rate over the next 5 years and in others, you would save more with a fixed rate. 

The purpose of this tool is not to quote a precise rate but to provide a series of realistic possible paths for variable mortgage rates and their general effects on your finances. For more precise rate quotes, see our variable mortgage rates Ontario comparison just above or connect with Altrua for personalized calculations and quotes.  

Here are the variable rate cases/projections we reviewed:

1. Current market consensus as of January 2024 for variable rate drop in mid-late 2024
2. The prime rate falls quickly within 5 years
3. Prime rate moves higher in 2024 and holds in a higher range
4. Prime rate floats down slowly over 5 years
5. The prime rate fluctuates over 5 years.

For each rate projection, we will briefly comment on the surrounding economic environment causing the rate movements.

For each of these projections, the following rates will be used. These are not today’s exact rates – current rates could be higher or lower and this can be factored in. But these will serve as a good general reference to compare with potential future rate outcomes:

5 Year Fixed: 5.35%

5 Year Variable: 6.5%

Please note that a mortgage amount of $100,000 has been used as a generalizable example. 

Current market consensus/forecast for variable rate drop in mid-late 2024

2023: 6.5%

2024: 5.75%

2025: 5%

2026: 4.5%

2027: 3.5%

In this scenario, variable rate savings are noticeable. For every $100,000 $1,188 is saved over 5 years. Due to the potential variation in rates, this could be closer to a break even projection. Or, if rates drop a bit further, the savings could be more significant – per our next projection.

Prime rate falls quickly within 5 years

As a result of a more rapidly slowing economy in 2024, disinflation and job losses, the Central Banks are forced to stimulate the economy sooner and more substantially than currently expected. But at the same time, still holding the prime rate well above inflation levels that would be close to or below 2% in this case. There is no extreme black event’ in this projection, but a more pronounced slowdown than projected in 2023.

Current: 6.5

2024: 5

2025: 4

2026: 3.5

2027: 3

In this scenario, the savings from a variable rate are significant. For every $100,000 $5,295 is saved over 5 years.

For those more likely to consider a variable rate, this is closer to the kind of rate path that would be expected. There are real deflationary signs in the market as of 2023 that momentum is building towards this. For those with a higher tolerance for risk, the payout could be large.

Prime rate moves higher in 2024 and variable holds in a high range

This path is considered the opposite of the above projections. Or what a continued increase in inflation into 2024 may look like from a variable mortgage rate perspective.

2023: 6.5

2024: 7

2025: 6.0

2026: 5.75

2027: 5

This kind of situation is of course the danger, and the risk of a variable rate. Likely, this won’t be the case given momentum still building from previous 2022/2023 rate hikes, but it’s possible and some recognized market advisors are warning about this.

Prime rate floats down slowly over 5 years

In this case, more balance is found in the high rate range. A period of soft landing, with low economic growth and gradually shrinking inflation. Persistent political turmoil and global supply issues could lead to this kind of rate path. While rates dont increase further, its seen that inflation and economic growth are stable with very gradual rate drops.

Current: 6.5

2024: 6

2025: 5.5

2026: 5

2027: 4.5

Worse off with variable here by $1,617 . However not as bad. It may not be as noticeable spread over the years depending on income relative to the mortgage size. It would only take a slightly lower variable rate scenario for a break even, or even a financial gain. Indeed, income relative to the mortgage amount should be a big consideration when looking at variable rate risk, as will be discussed in more detail in a section below.

The prime rate and variable fluctuate over 5 years

Inflation drops but keeps returning when rates drop. Over the years, these fluctuations moderate as debt increases and supply chains and economies adapt to underlying global economic trends. Overall, rates find a higher resting point. 

2023: 6.5

2024: 5.5

2025: 5.75

2026: 4.25

2027: 4.0

Essentially break even of $257 which would be less noticeable for most borrowers over 5 years. Likely, these projected rates will not be exact. However, the idea is a fluctuating type of term could result in a closer to break even outcome. 

Some see rates falling and inflation picking back up. In fact, in 2023 we saw this where fixed rates dropped earlier in the year and the housing market in Ontario took off. If this happens, the Bank of Canada may be inclined to increase to swat out surges of inflation that may come along. Over time, though, it’s projected the volatility subsides.

If the market were to play out like this, it would be close to breaking even versus when compared to a 5-year fixed term.

Tips for Securing the Best 5-Year Variable Rate

Rate Discussion – Is a Variable Mortgage Rate right for you?

Based on the models above, the first two scenarios (1) ‘Market consensus’ and (2) ‘Rates fall quickly’ would provide for savings when compared to the fixed term. 

The 5th projection, the ‘fluctuating rates’ case, was closer to breaking even.

In projections  #3 and #4, the variable rate led to higher costs than the fixed. While these cases are not as likely, they are possible. Indeed, most would not have assumed Bank of Canada rate would reach 5% in 2023. 

Given this, the main point of this overview would be whether you are comfortable enough with the ‘gain projections’ to offset the possibility of the ‘loss projections’.

If yes, the variable rate could be right for you.

One of the Biggest Mortgage Rate Questions to Ask Yourself

A major consideration for this risk is your ability to afford a more expensive variable rate. The two main factors are:

• The size of your mortgage.
• 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.

A one year fixed rate versus a variable rate mortgage

Comparing the one year fixed mortgage to a variable 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 2023. 

With this said it is our opinion, that the one-year fixed rate offers slightly more flexibility because, historically, fixed rates start dropping before variable rate mortgages. This is because fixed rates are priced based on the government of Canada Bond Yields. 

In other words, fixed rates are not priced based on bank prime, like the variable rate is. 

Therefore, in one year, you will likely see lower fixed rate mortgages upon the renewal date of the one-year term and a higher variable rate. Again, the fixed mortgage rates can easily price in 2-4 Central Bank rate drops, within a few weeks. 

However, this does not guarantee savings, and for those who prefer to ‘set it and forget it’ or to ‘buy and hold’ the mortgage market, then the variable could be a superior option.

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 * 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 alot 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 ied 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. 

Locking a Variable Rate into Fixed Rate

A HELOC is an (Open) Variable Rate Mortgage

FAQ amount the 5 YR Variable Rate

How is the variable rate mortgage priced?

The variable rate is based on the Bank Prime Rate, which is currently 7.2%. 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 6.2%. 

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 2023?

Over 2023, the arable rate has increased. However, the financial markets and economists project the variable will not increase again in 2023 unless core inflation is seen as rising.

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. Tyilically, 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?

Yes, most variable mortgage rates can be locked in during the term.