Variable Rate Mortgage

Explore how variable rate mortgages work in Canada, their benefits and risks, and how rate changes affect your home loan payments.

Variable Rate Mortgage



What is a Variable Rate Mortgage?

A variable rate mortgage is a home loan with an interest rate that fluctuates based on the lender’s prime rate or a benchmark rate like the Bank of Canada’s overnight rate.

Why Do Variable Rate Mortgages Matter in Real Estate

In Canada, variable rate mortgages typically offer lower initial interest rates than fixed-rate options, but the rate can change over the life of the mortgage, affecting monthly payments.


Two common types:
  • Adjustable-rate: Monthly payment changes as the rate changes
  • Fixed-payment variable: Payment stays the same, but interest/principal ratio shifts

Pros:
  • Lower initial interest rate
  • Potential savings if rates stay low

Cons:
  • Risk of rising interest rates
  • Harder to budget long-term


Buyers choosing a variable rate mortgage must be comfortable with uncertainty and have financial flexibility to absorb rate increases.


Understanding variable mortgages is key to selecting the right product based on risk tolerance, economic outlook, and long-term financial goals.

Example of a Variable Rate Mortgage in Action

A homeowner chooses a variable rate mortgage starting at 4.25%. When the Bank of Canada raises rates, their interest rate increases to 5.00%, and their payments rise accordingly.

Key Takeaways

  • Interest rate changes with market conditions.
  • Lower initial cost, but higher risk.
  • Two types: adjustable and fixed-payment.
  • Influenced by Bank of Canada decisions.
  • Requires comfort with rate fluctuations.

Related Terms

  • Fixed Rate Mortgage
  • Prime Rate
  • Mortgage Term
  • Amortization
  • Refinancing

Additional Terms

Land Banking

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Land Assembly

Land assembly is the process of acquiring and consolidating multiple adjacent parcels of land under one ownership, typically for redevelopment or. more

Joint Venture

A joint venture in real estate is a partnership between two or more parties to develop, own, or operate a property or project, sharing risks, costs,. more

Infill Development

Infill development is the process of building new housing, commercial buildings, or amenities on vacant or underutilized land within existing urban areas.. more

Inclusionary Zoning

Inclusionary zoning is a municipal planning tool that requires or incentivizes developers to include a percentage of affordable housing units in new. more

Impact Fees

Impact fees are charges levied by municipalities on new developments to offset the cost of additional public infrastructure and services required by. more

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