Mortgage Rate History

Fixed Rates vs. Variable Rates Mortgages

A variable rate mortgage loan allows the borrower flexibility in times where a fixed rate may not be the best choice. Variable rate mortgages have typically been a better option for the consumer over the last 10 years — as represented in the graph below. The interest rate was previously calculated at an ongoing basis at prime minus a set percentage. In the summer of 2008 the Variable Rate Mortgage changed from a Prime Minus offering to a Prime Plus offering due to credit markets and the US Credit Crisis. Availability of funds has become scarce so, to combat the problem of scare credit and to tighten the belt slightly, Prime Plus has become the new benchmark. Today, for example, if the prime-lending rate is at 3.50 per cent, the holder of a prime plus 0.55 per cent mortgage will pay a 4.05 per cent interest rate, until the prime rate changes. (Prime rate is the "best" rate that the banks use when pricing loans to their most creditworthy customers.) This is still an unbelievable product in terms or savings and options.

To show a comparable 5 year fixed rate verses a variable rate mortgage, the 5-year bank posted has been adjusted by a reduction of one and a half per cent. This is typically the discount offered by most mortgage brokers in Canada. Variable rate is shown as prime since it has been prime +/- 0.8 per cent in the past.

Fixed Mortgage Rate History of 1, 3 and 5 Year Terms

With mortgage interest rates known as "fixed mortgage rates", the borrower's monthly payments for interest and principal remain the same for the duration of the loan regardless if Canada prime rate increases. These mortgage rates do not fluctuate as long as the borrower is in a term agreement. The three most common durations to lock-in interest rates are the 1, 3 and 5 year terms.

The advantage of fixed rate mortgages is that you know exactly how much your mortgage payments are regardless of whether rates rise or fall. This makes for easier budgeting and is less risky than a variable rate mortgage.

The following chart shows the 10-year rate history for the 1, 3 and 5 year fixed rate mortgages.