“We’ve seen a steady worsening for a while now,” Ron Butler of Butler Mortgage tells Canadian Mortgage Trends, referring to the broader trend of mortgage pricing creeping higher.
High-ratio 5-year fixed rates, which dipped as low as 3.64% earlier this month, have since jumped by 10 to 20 basis points, he noted. Conventional (uninsured) fixed rates have also been creeping higher.
At the same time, variable-rate discounts are shrinking, with some banks like CIBC and Scotiabank reducing how much they shave off the current prime rate of 4.95%. “It’s been happening gradually,” Butler says. “The offers just aren’t what they used to be.”
At both banks, variable-rate pricing has increased by roughly 10 to 15 bps. So, why are lenders pulling back?
“It’s not just a swap cost problem,” Butler explains. “I don’t think it’s just hedging, or any of those things. It’s just enough uncertainty. The big banks want to cover their bets in case there’s a sudden rate move that leaves them in a bad spot.”
Why variable rates still have room to fall
Variable-rate discounts have continued to narrow across the industry, not just at the big banks.
Butler noted that while several lenders are still offering close to 100 bps off prime on high-ratio mortgages through discretionary pricing, the broader trend is clear: “When big banks can sell fixed rates, they’ll disincentivize variable.”
That pattern isn’t new. During the 2008 financial crisis, Butler recalls variable rates being offered at just prime plus 10 basis points, as lenders pulled back sharply on discounts.
Today’s environment is marked by uncertainty—not just around rates, but also broader economic signals, including tariffs, global trade disruptions and stock market volatility.
“It’s all extremely confusing, and that’s enough to harm the economy to the point where the Bank of Canada won’t remain paused the rest of the year,” he said, noting that markets are pricing in at least another half-point cut.
That means that even though new variable-rate pricing has crept higher due to shrinking discounts, actual rates for variable-rate borrowers are still expected to fall over time as the Bank of Canada lowers its policy rate.
Short-term pain, but long-term opportunity?
While discounts on variable-rate mortgages have been shrinking, some experts argue variable rates could still prove cheaper over time.
Mortgage rate expert Dave Larock noted in a recent blog post that while variable rates today are higher than available fixed rates, they could come out ahead in the long run if the Bank of Canada is forced to cut more aggressively later this year.
“Broadly speaking, if a fluctuating mortgage rate won’t put you under worrying financial pressure and if you are comfortable with the inherent uncertainty of a variable rate, I think the variable rate will likely prove to be the cheapest option,” he said.
Larock adds that bond markets are currently pricing in just two more quarter-point rate cuts, but he believes the Bank of Canada could ultimately cut by 0.75% or more if recession risks materialize, pushing variable rates even lower.
Still, he cautions that variable rates are best used as a long-term strategy—not a short-term bet for those planning to time the market and convert to a fixed-rate mortgage ahead of potential variable-rate increases.
“In my experience, borrowers who convert from variable to fixed mid-term typically end up locking in fixed rates that are higher than those that were available when they originally secured their financing,” he noted.
Recommendations: grab sub-4% while you can
Butler urges borrowers to lock in a sub-4% 5-year fixed rate if they still can.
“If you can still get a 5-year rate that starts with a 3, that’s a great idea,” he said, adding that just two years ago, borrowers would have jumped at the chance for anything under 4%.
But he also emphasizes the importance of mortgage term flexibility, especially for those expecting a life change within the next few years.
“If there’s anything on the horizon that makes you think you’ll undergo a major house transition in two years, take a variable mortgage, because that gives you the lowest penalty and the most flexibility,” he said.
With files from Jared Lindzon
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Last modified: May 5, 2025