Compare the best 3-year variable mortgage rates

When it comes to variable-rate mortgages, many Canadians view the 5-year variable as a common alternative to a 5-year fixed-rate mortgage. However, some lenders also provide 3-year variable mortgage options. So, is a 3-year variable mortgage the right choice for you? We'll help you determine if a 3-year variable mortgage rate meets your needs.

The best current 3-year variable mortgage rates in Canada

What is a 3-year variable mortgage rate?

A 3-year variable mortgage rate fluctuates with the prime lending rate for three years. This differs from a 3-year fixed-rate mortgage, which features a set rate for the entire term. 

Depending on the lender, you may be able to choose between an open and closed variable-rate mortgage. A closed mortgage means that if you break the contract before the end of the term, you’ll be subject to a prepayment penalty. The advantage of a closed mortgage is that the rate is usually lower. 

An open mortgage will have a higher interest rate, but you can pay off the balance in full at any time without a penalty. Note that some lenders may charge an administration fee. 

Who are 3-year variable rates best for?

A 3-year variable rate isn’t for everyone, but it might be suitable in certain situations. For example, it might be worth it if you believe that rates will decrease and you can secure a lower rate on a 3-year variable than on a 5-year variable. This is especially true if you plan to sell your house within the next three years and can time things in such a way as to avoid paying a prepayment penalty. 

If you prefer a variable mortgage but plan to live in your home long-term, you’ll likely be better off with a 5-year variable rate. 

Regardless of the term you choose, any variable-rate mortgage should have a lower prepayment penalty than a fixed-rate mortgage. That’s because, with a variable-rate mortgage, the prepayment penalty is usually a three-month interest charge. Fixed-rate mortgages often charge an interest rate differential (IRD), which is usually more expensive. 

Factors that influence 3-year variable mortgage rates in Canada

As mentioned, variable-rate mortgages are determined by the prime rate, which typically adjusts when the Bank of Canada changes its overnight lending rate to control inflation. This differs from fixed mortgage rates, which are based on bond yields. 

For example, the prime rate at the time of writing is 6.70%. If you secure a 3-year closed variable-rate mortgage at Prime + 1.0%, your starting rate will be 7.70%. Now, let’s say the Bank of Canada decreases the prime rate by 0.25%. Providing your lender follows suit, your mortgage rate would drop to 7.45%. Conversely, if rates went up by 0.25%, your new rate would be 7.95%. 

Pros and cons of getting a 3-year variable mortgage rate

The 5-year variable is the most popular variable-rate mortgage in Canada. However, there are times when a 3-year variable mortgage rate might be the best choice. To help you decide, here is our list of pros and cons:

Pros

• Benefit from lower interest costs if rates drop during your 3-year term

• Shorter time commitment than a 5-year term

• Generally, breaking a variable mortgage early is less expensive than a fixed mortgage.

Cons

• Less protected if rates increase during the term

• Increased risk of having to renew at higher rates compared to a longer term

• Most variable-rate mortgages are not portable

Top tips for finding the best 3-year variable rate in Canada

Here are the steps to follow when looking for a 3-year variable mortgage: 

1. 1.

   Consider your future plans. Before settling on a 3-year variable rate mortgage, consider whether it’s the best product for you. A variable rate may be ideal if you expect rates to decrease in the future. But what happens if rates go up? Do you have the budget flexibility to afford a potential increase to your mortgage payments?
   
   Also, how long do you plan to live in your home? If there’s a chance you may need to break the mortgage early and pay a penalty, a 3-year variable could be a better choice than a fixed-rate mortgage. 
   

2. 2.

   Make a list of potential lenders. In order to secure the best 3-year rate, you’ll want to shop around with different lenders. However, not all Canadian mortgage lenders offer the 3-year variable rate. Take time to research and make a list of lenders that do offer this product.
   

3. 3.

   Consult with a mortgage broker. If you don’t have the time to spend researching lenders or feel out of your depth, you may want to hire a mortgage broker. A mortgage broker can shop your application to dozens of lenders, and will know which ones offer the best 3-year variable mortgage rates. 
   

4. 4.

   Check your credit report. Before you apply for a new mortgage, check your credit report to ensure your credit rating is solid. You can check your score for free through Borrowell and Credit Karma or directly from the credit bureaus. A strong credit rating is critical if you want to secure the lowest mortgage rates. If your score isn’t where you want it to be, there are steps you can take to improve your score in a relatively short period. 
   

Why are 3-year variable mortgage rates becoming more popular?

Variable mortgage rates became very popular during the COVID-19 pandemic when the Bank of Canada cut interest rates to spur economic growth. At that point, Canadians had become so used to low rates that many didn’t consider the possibility that rates might rise. And variable rates had fallen even further than fixed rates, making them incredibly popular. 

Things changed quickly in March 2022, when the Bank of Canada began a series of rate increases as COVID-related inflation began impacting Canadian and global economies. This continued until June 2024, when the central bank made its first move to drop rates since the outset of the pandemic. 

Today, variable-rate mortgages (including the 3-year variable) are again in the spotlight. Many Canadian homebuyers, expecting rates to continue to fall, are growing reluctant to lock in a high fixed mortgage rate. 

FAQs

Colin Graves Freelance Writer

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.

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