Prime rates have recently declined, and many Canadians are rethinking which term to choose.
We'll help you weigh the recent trends, risks, and potential savings to decide if a variable mortgage rate makes sense for you this year.
Variable mortgage rates seem much scarier in recent Canadian homeowner memory, having endured a fast rate rise to tame high inflation not all that long ago.
Yet, variable rates carry 'historical' savings weight, making them a favoured choice for less risk-adverse mortgage borrowers.
Amid an economic slowdown resulting from U.S. trade disruption, home buyers and owners are weighing their rate choice carefully this year:
Let's explore the variable rate's potential for mortgage savings it could bring over your next term.
Unless you've been up in the attic doing some home maintenance, you're likely aware that Canada is in the midst of a trade war with the U.S.
Read more about how U.S. President Trump's trade tariffs could alter the path of mortgage rates in 2025, and be sure to keep up with real-time forecasts in our 2025 Rate Forecast blog.
The prime rate — and, therefore, variable mortgage rates — just dropped again by 0.25%, and it may still decline in 2025.
Fixed rates have also recently declined, though inflationary factors due to trade and policy volatility are likely to keep both rates from dropping substantially more, unless a recession digs in.
Despite suffering the equivalent of 19 rate hikes (0.25% increments) from March 2022 to June 2024, the narrative has recently shifted back to the benefits this rate type offers during a period of declining rates:
Your variable rate reflects the discount off prime your lender offered for your contract rate, which stays put for your 5-year term.
The Bank of Canada rate is currently sitting at 2.50%. Bank prime rates have dropped 2.50% — from the 2024 peak of 7.20% — to 4.70%.
Amid trade turmoil with the U.S., which has introduced a slowdown in Canada's economy this year, inflationary risks from tariffs and government debt are pushing against on a lower BoC policy rate.
True North Mortgage CEO Dan Eisner predicts that the prime rate may not have much further to go in 2025:
This rate forecast is subject to change, as economic conditions are volatile this year. Both Canada and the U.S. are grappling with politically charged policy decisions that could impact our economic growth and the Bank of Canada's rate agenda in both the short and long term.
Note: In a more challenging economic environment, such as a tariff-triggered recession, variable discounts offered for renewals or home purchases may shrink as lenders deal with increasing operating costs.
How much further variable rates could fall during your term would impact how much you'd save vs. choosing a fixed rate right now.
We've been living in the (rate) upside-down for the last couple of years — with variable rates higher than fixed rates.
But variable rates are usually lower than the 5-year fixed rate, by a spread of anywhere from 0.25 to 1.0% (during the pandemic, the spread increased to around 1.5%!). The normal spread relationship has only just returned, as variable rates have finally crossed the threshold.
A lower variable rate (compared to a fixed rate) is a compelling reason for homeowners to choose this rate type, hoping that rates don't increase — or if they do, decrease with enough time to still save over a mortgage term.
Here's how much you might save choosing a variable rate of 3.85% (P- 0.85%) now vs. locking into a 5-year fixed rate of 3.94%:
Note: Assuming a $500K mortgage and 25-year amortization. The above numbers are for illustration only. During volatile times, it may be harder to predict where interest rates might be in 5 years.
Despite the allure of the savings potential offered by a lower rate and riding out prime rate trends — a variable rate isn't for everyone.
Set it, and forget it. Some homebuyers and owners, especially first-timers, prefer the set-budget strategy (aka peace of mind) of a fixed rate.
Consider your risk preference. Prime rates (directly affected by Bank of Canada rate decisions) carry the risk of rising again if inflation trends up, which may lead to 'rate regret' if you usually prefer the relative safety of a fixed rate.
Fixed rates aren't as high as they were last year. These rates came down ahead of the prime rate declines, making it much less expensive than a year ago to lock into a fixed rate if you're comfortable with the mortgage payment. True North has great rate term rates available, thanks to our volume discount and access to several lenders.
According to True North Mortgage, the choice of a 5-year variable rate drew about even alongside both the 5-year and 3-year fixed rate this July 2025:
As bond yields pushed fixed rates up, a lower variable rate offered a better savings choice.
During 'balanced' economic times, about 30% of clients typically choose a variable rate, about 60% opt for a 5-year fixed rate, and roughly 7% select a 3-year fixed rate.
Note: Stats include all lenders that True North's clients were placed with, including in-house CMHC-approved lender, THINK Financial.
Some may not want to lock into any 5-year rate if they think rates will go lower before then.
Choosing a shorter term. Some clients are happier with a shorter-term fixed rate, such as a 2-year deal, which may see them into lower rates sooner than a 5-year fixed might.
Or, for those buying a home or switching lenders, we offer the lowest fixed rate in Canada. Our low-rate 6-month Rate Relief™ product offers a quick budget break to help with closing costs or moving expenses while waiting to see if market rates drop further.
If variable rates are your thing, and you have decisions to make in the next while (like a possible move) or extra money you'd like to put down on your mortgage principal — open (vs closed) variable rates can offer all the flexibility you need.
However, open variable rates tend to be higher than typical rates because of the increased possibility of mortgage changes that the lender has to absorb.
We currently offer a No Committment™ mortgage with the lowest open variable rate in Canada. Read more here, and apply online or talk to us if you want to know more.
True North Mortgage consistently offers lower variable rates than the competition through its in-house lender, THINK Financial — and here's the proof.
This 3rd party stat shows that over the years, we've helped clients save more with a great rate and flexible mortgage.
Whether you choose variable or fixed, or go with our lender or another, our highly trained brokers provide unbiased advice for your best mortgage fit, in your preferred language.
You only live once (unless you have nine lives like a cat or Rick Astley), so you may as well save the most on your mortgage.
We make it easy. Our expert brokers offer you exceptional 5-star service, along with your guaranteed best rate and the right mortgage product for your needs, regardless if your details are straightforward or more complex.
We can help with your rate decisions in 2025 and beyond — anywhere you are in Canada.
Which rate type works best for you, variable or fixed? Some pros and cons to help you decide.
Continually updated. Where rates may go now and later — and what’s driving them.
Will trade disruptions drive mortgage rates lower, even if inflation goes higher?
