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Instantly Compare The Best 1-year Variable Mortgage Rates

Compare the best 1-year variable mortgage rates

Colin Graves

By Colin Graves

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Updated: September 06, 2024

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1-year variable mortgage rates aren't very popular among Canadian homebuyers. However, if you're considering a 1-year variable mortgage, we're here to help you determine if it's the right choice for you.

The best current variable mortgage rates in Canada

What is a 1-year variable mortgage rate?

A 1-year variable mortgage rate fluctuates with the prime lending rate over the term of a 12-month contract. This differs from a 1-year fixed mortgage rate, which does not change for the entire term. Unfortunately, 1-year variable rate mortgages are not very popular, so many lenders do not offer them as an option. Most, however, do offer a 1-year fixed rate mortgage, both closed and open. 

How do I know if a 1-year variable rate mortgage is right for me?

Simply put, a 1-year variable rate mortgage doesn’t suit most homebuyers, which is one reason they are so uncommon. Not only are short-term mortgage rates sometimes higher than longer-term rates, most homebuyers want to secure a mortgage rate for several years, not every 12 months. 

That said, if you plan to have a mortgage for only a short time, then a 1-year term may make sense. This could be the case if you were purchasing an investment property or expecting mortgage rates to fall in the near future.

Also, if your current mortgage term is about to expire but you plan to sell your home within the next 12 months, you might renew it for a 1-year term to avoid a costly prepayment penalty. 

Regardless of your situation, 12 months isn’t sufficient time to benefit from a variable-rate mortgage product. If you do need the flexibility of a shorter term, most lenders can offer you a 1-year open or closed fixed-rate mortgage that should meet your needs. 

Factors that influence 1-year variable mortgage rates in Canada

Variable-rate mortgages typically fluctuate with prime rate, which typically adjusts when the Bank of Canada changes its overnight lending rate. This differs from fixed mortgage rates, which are determined by bond yields. 

For example, if you had a 1-year variable mortgage rate of Prime + 0.75 (with prime currently at 6.70%), your mortgage rate would be 7.45%. If prime rate drops by 0.50%, your mortgage rate would drop to 6.95%. Conversely, if prime rose by 0.25%, your rate would climb to 7.70%. 

Variable mortgage rates in Canada have traditionally been slightly lower than fixed rates, making them an attractive choice for Canadians who are willing to assume some risk in exchange for possible interest savings. 

Pros and cons of getting a 1-year variable mortgage rate

If you can find a lender offering a 1-year variable mortgage rate, here are the pros and cons you should consider before signing up. 

Pros

Pros

  • Provides short-term flexibility

  • Lower prepayment penalties than a longer-term mortgage

  • You stand to benefit if interest rates fall in the short-term

Cons

Cons

  • Not commonly offered by mortgage lenders

  • Rates can be higher than longer terms, depending on the market

  • If the prime rate increases, your mortgage rate could increase

FAQs

  • What happens at the end of a 1-year variable rate mortgage term?

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    At the end of a 1-year variable rate mortgage term, you will have three options: To renew your mortgage into a new term with your current lender, to pay off your mortgage in full without incurring a prepayment penalty, or to move your mortgage to another lender, also without incurring a penalty.

  • How can I find the lowest 1-year variable rate?

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    When shopping for a mortgage, it is wise to compare rates and terms from various lenders. Never assume that your primary financial institution will offer you the best terms or lowest rate. In the case of a 1-year variable rate mortgage, we recommend that you consult a mortgage broker. Because the 1-year variable is not commonly offered, they are in the best position to know what’s available.

Best current mortgage rates in Canada

Colin Graves Freelance Writer

Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.

Compare mortgage rates in Canada

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