Variable Rate Mortgage
Explore how variable rate mortgages work in Canada, their benefits and risks, and how rate changes affect your home loan payments.
May 22, 2025
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
Building height changes from the previous master plan apllcation. (Peterson)
An overview of Blake Village and the phasing plan. (Peterson)
An overview of Blake Village and planned open space. (Peterson)
Hudson’s Bay vacated about as much space as Target did in 2015. (JLL)
A rendering of Frame in East Vancouver. (Peterson)
The Tesla facility set for 908 Raymur Avenue in Vancouver. (Beedie)
Phase One of Sen̓áḵw in Summer 2025. (OPTrust, Nch’ḵay̓)
(QuadReal Property Group, Westbank)
The two-tower Cascades project under construction in mid-2025. (Ledcor)
A rendering of Perla near Central Park. (Polygon Homes)
Phase One of Concord Metrotown is located at the corner of Kingsway and Nelson Avenue in Burnaby. (Concord Pacific)
Myriad will complete Concert Properties’ Heart of Burquitlam community. (Concert Properties)
SOCO 2 (left) in Coquitlam. (Drew Powell, LinkedIn)
King George Hub in Surrey. (Submitted by PCI Developments)