The gap between variable and fixed-rate mortgages has widened (Photo by Jeff J Mitchell/Getty Images)

Low rates have helped fuel the real estate rally and today, Ratehub.ca says the best 5-year variable rate on its site dropped to 0.98 per cent, which it says is the lowest 5-year variable-rate mortgage in Canadian history.

The rate is available through the site’s in-house lender CanWise Financial and is open to homebuyers with less than 20 per cent for a downpayment, or those that had less than 20 per cent down on renewal.

It comes with a 20 per cent prepayment option, 120-day rate hold, is portable and assumable, and the penalty to break is three months of interest.

“We are really excited to be able to offer the lowest rate in Canadian history because it will save our customers so much in interest,” said Ratehub.ca.

Today’s announcement means the gap between fixed and variable-rate mortgages has widened. Ratehub.ca says the best fixed-rate on its site is 1.74 per cent, which is 0.76 percentage point higher than the best variable rate.

The Bank of Canada embarked on a series of cuts to its key overnight rate to help the economy cope with the effects of the COVID-19 pandemic. Ratehub.ca says Canada’s central bank would need to raise rates three times to bring this variable rate in line with the best fixed rates. It would have to keep going for the variable rate to be higher.

The overnight rate isn’t likely to be raised any time soon, as the Bank of Canada has been indicating and not until its inflation targets have been met.

“We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s April projection, this happens sometime in the second half of 2022,” said the Bank of Canada in a release when it announced its most recent rate decision.

Ratehub.ca says a homeowner who puts down 10 per cent on a $500,000 home with today’s new 5-year variable rate amortized over 25 years ends up with a monthly mortgage payment of $1,744.

In the first year, that’s $20,927 of which $16,463 is principal and $4,464 is interest. Over the 5-year term, $104,633 is paid, of which $83,947 is principal and $20,686 is interest.