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First, let’s talk about variable versus fixed mortgage rates. A variable mortgage rate typically offers lower rates than a fixed rate, but they can vary over the duration of your mortgage terms. Variable rates track market behaviour and, therefore, affect your payments by increasing or decreasing alongside the market.
A fixed mortgage offers stability as payments remain the same each month. However, fixed interest rates lead to higher monthly payments. Essentially, you trade-off higher payments in exchange for stability. Fixed rates are Canada’s most popular mortgages, representing 66% of all mortgages. Ultimately, the best mortgage option is the one that’s most attractive to you…
3-year fixed mortgage rates
Over the course of three years, a fixed mortgage rate will remain consistent during your loan period. Don’t, however, confuse this with the amortization period. An amortization period is the length of time it will take you to pay off your entire mortgage, while the fixed rate is the period you are committed to repaying the specified mortgage rate with your lender.
3-year variable mortgage rates
Otherwise known as adjustable mortgage rates, variable mortgage rates follow the prime lending rate — i.e. the rate at which banks lend to creditworthy customers. A 3-year variable rate absorbs interest charges over the term of the mortgage. Variable rates are lower than fixed rates, because with a fixed rate you’re paying for protection against rate instability.
5-year fixed mortgage rates
With a 5-year fixed mortgage rate, you’ll have the same interest rate over the course of five years. Once again, the term of the mortgage – the length of time you lock in the mortgage rate – should not be confused with the amortization period, which is the amount of time it takes you to pay off your entire mortgage.
5-year variable mortgage rates
The prime rate, also known as the market interest rate, is the determining factor in variable mortgage rates. If your variable rate is quoted as prime – 0.6% and the prime rate is 7%, you would pay 6.4% in interest. Bear in mind, however, that a variable rate fluctuates and will affect your mortgage payments as a result.
Now you know more about different mortgage types and their rates, you should find it easier to choose the best one for you. Try our handy comparison tool to find the best mortgage rate in Canada for your needs and budget.