A fixed mortgage rate means that your interest rate is set at the beginning of your term and will not change throughout the duration of your mortgage term. This mortgage type offers a predictable and steady payment structure as your interest rate will always remain the same.
A variable mortgage rate means that your interest rate may fluctuate intermittently because it is based on the market (prime) rate. It can offer significant savings at the beginning of your mortgage term. A variable rate mortgage provides you with flexibility to take maximum advantage when interest rates fall. However, should interest rates rise, a greater portion of your repayment amount will go towards the interest payment versus the principal of the overall mortgage.
Canadian interest rates
Below are charts showing the Bank of Canada’s Prime Interest Rate (Blue) which is used by Canadian Banks for their Variable Rate Mortgage and its 1 (Yellow), 3 (Orange) and 5 (Green) year Conventional Mortgage interest rates, which are used by Canadian Banks for their Fixed Rate Mortgage Products.
The 5 Year Conventional Rate (Green) is used as the “Benchmark Rate” or commonly referred to as the qualifying rate, which is the rate used to calculate the approved mortgage amount. It is important to note that these are the banks posted rates and are typically not the rates one would receive on their mortgage contract. For example in a variable rate mortgage a discount would be negotiated, represented by P-0.80 or Prime – 0.80%. While these posted rates are not typically the final contract rate, they are used by some banks to determine the penalty if one where to break their mortgage.
Here are the Bank of Canada’s Interest Rates for the last forty years. As you can see there have been major changes in when looking back in the 80’s and early 90’s with the highest rate coming in at 22.75%. In this era rates where high but the cost of homes were substantially lower. Within the last ten years we have seen the reverse, mortgage rates are at an all time low while the cost of homes have been on the constant rise. When comparing these two distinct times, the cost of borrowing are marginal.
Historical Interest Rates, 1980 - Present
Last 5 Years
As shown below, Interest Rates for the past decade have remained at an all time low. With the introduction of the Stress Test and qualifying borrowers at the 5 Year Conventional Rate (Green), Canadas interest rates are very stable.
O.A.C. Terms and Conditions Apply. Rates are Subject to Change without notice
The Bank of Canada is preparing for its next interest rate announcement, but will it follow many of its global peers and make a cut?