5 Year Variable Mortgage

How to Make the Most of a 5 Year Variable Mortgage Rate at the Best Rates

Canadians have a wide selection of mortgage alternatives to pick from, ranging from short-term loans with varying interest rates and repayment periods to long-term mortgages with more flexible terms and lower monthly payments. Many homebuyers and homeowners have chosen the 5 year variable rate due to the benefits it offers. 

The best variable rates in history have had a one percentage point reduction off of the prime rate. Even at a prime minus 0.50%, they have regularly outperformed fixed rates. Find out what a 5-year variable mortgage rate can do for you and determine whether the benefits and drawbacks are worth it.

5 Year Variable Mortgage Rates Have “Floating Rates

A variable mortgage’s interest rate is known as a floating rate. The term “floating rate” refers to interest rates on variable mortgage loans, which are adjusted depending on market conditions by the prime rate. There are two varieties of floating rates available with variable mortgages. 

A regular variable rate mortgage (VRM) has a constant payment throughout the whole term. The proportion of principle you pay down with each payment varies depending on the prime rate changes. An adjustable-rate mortgage (ARM) has a monthly payment that fluctuatates with the prime rate.

What Is A 5 Year Variable Mortgage Rate?

The 5 year variable mortgage rate is the most common variable-rate loan in Canada. The rate is linked to a lender’s Prime rate and can rise or fall during the course of the five-year mortgage term. The 5 year variable rate is a legally binding contract you will sign with your lender that specifies the interest rates for the duration of the five-year mortgage term. 

There are two types of open 5 year variable mortgage rates: closed (or) open.

How Does A Closed 5 Year Variable Mortgage Rate Work?

Closed mortgages have strict conditions that prevent the borrower from paying off the loan, renewing or refinancing it without incurring high penalty costs. Closed variable mortgage rates are typically associated with lower interest rates than open mortgages. 

Most closed mortgages will include accelerated payment alternatives, although the lender will set the repayment conditions. You are under obligation to the loan agreement for the duration of the 5 year mortgage term if you accept the closed 5 year variable mortgage rate.

Benefits Of A 5 Year Variable Mortgage Rate

There are a few advantages to consider when comparing 5-year fixed mortgage rates. If you want to alter the length of your loan so that it is more suitable for your needs, the 5-year variable rate mortgage is an excellent choice. In the long term, adjustable loans borrowers pay less overall interest because rates have been declining for the last 30 years. 

You may renew or refinance your mortgage before the end of its term without paying any fees or obtaining an unfavorable deal if you have an open 5-year variable rate. Finally, although closed 5 year variable mortgage rates have penalty costs, they are still less expensive than the penalty charges on 5 year fixed mortgage rates.

Drawbacks Of A 5 Year Variable Mortgage Rate

There are some drawbacks to keep in mind when deciding on whether or not to get a 5 year variable mortgage rate. If the prime rate rises, you’ll be charged higher interest rates. The majority of lenders are only willing to offer variable mortgages to individuals who can show proof that they will be able to make payments based on the Bank of Canada’s benchmark 5-year fixed interest rate mortgage. 

In the event that interest rates rise significantly, you’ll need a much larger than usual debt-to-loan ratio in order for the lender to be willing to give you the loan. There are penalties if you need to terminate your closed 5 year variable mortgage rate early; the cost is three months of interest. 

Fixed-rate loans, on the other hand, have larger penalties for terminating your loan early. Another drawback to consider is that you may be charged a “interest-rate difference.” This is the amount you could be required to pay, which is calculated based on how much rates have fallen and how long you have left on your loan. Prepayment penalty fees can as high as 4% of your entire loan.

Who Is A 5 Year Variable Mortgage Rate For?

The open 5 year variable mortgage rate is a fantastic option for people who want to pay off their mortgage in portions and those who are thinking about selling their house but can’t afford the higher monthly payments. If you have swings in your cash flow that would allow you to pay your mortgage off in lump sums, wish to prepay more than 20 percent of your loan amount, or anticipate rates will drop, this product is ideal for you. 

You will benefit most from a 5 year variable mortgage rate if you’re looking to save money in the short term. You value flexibility and appreciate how inexpensive it is to terminate your mortgage early. The growing prime rate does not put added pressure on your finances.

The Bottom Line

If you’ve carefully considered the benefits and drawbacks of a 5-year variable rate and come to the conclusion that you’ll benefit from one, then it’s worth considering. Variable rates have the potential for rate increases, so be sure your budget allows you to adjust if necessary.

If you want to refinance or sell your home in the next 5 years, it’s also essential to pick an open-ended 5-year variable mortgage rate rather than a closed one or a fixed mortgage. While the cost of breaching a variable-rate loan is less than that of a fixed-rate loan, if you can avoid it, do so. 

Choose the loan that best matches your present financial situation and future plans. It is beneficial to compare rates in order to maximize your savings.

Apply Now! With Us, You Can Compare Rates And Maximize Your Savings!

There are so many loans to choose from when it comes to planning for the future that making a selection can be difficult.  We’ll work with you to find the best interest rate, monthly payments, equity access, and any other terms that matter most to you. We’ll build a loan that is tailored to your current budget and future plans. 

We offer a variety of loans for all credit types and financial situations. We’ll build a loan that is tailored to your current budget and future plans. We offer a variety of loans for all credit types and financial situations. We would love to help finance your future! Apply now!