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
The 8530 Cambie Street site in Vancouver, directly adjacent to Marine Drive Station. / Perkins&Will, PCI Developments
A sketch of Marine Gateway (left) and Marine Gateway 2 (right). / Perkins&Will, PCI Developments 
A rendering of Marine Gateway 2 at 8530 Cambie Street from along Cambie Street. / Perkins&Will, PCI Developments 
An aerial rendering of Marine Gateway (south) and Marine Gateway 2 (north). / Perkins&Will, PCI Developments 
A side view of Marine Gateway 2 and the layout and elevations of the industrial and retail space. / Perkins&Will, PCI Developments
A rendering of the elevated park at Marine Gateway 2. / Perkins&Will, PCI Developments 
Left: 1675-1685 Eglinton — Right: 1711-1741 Eglinton/Kirkor Architects and Planners, Shelborne Capital
101 Spadina/Audax, Devron Developments
340-376R Dufferin and 2 Melbourne/Sweeny &Co Architects Inc., Hullmark
1705 Weston/Graziani + Corazza Architects, Altree Developments
1276 Islington/Kirkor Architects and Planners, Ranee Management
3725 Bloor/Montgomery Sisam Architects Inc.
2-12 Cawthra/ZAS Architects + Interiors Inc, BV Realty Partners
The 807-815 Hornby Street site and its surrounding context, including nearby hotels. / SHoP Architects, BOP Architects, Reliance Properties
A rendering of the hotel and residential lobbies along Hornby Street. / SHoP Architects, BOP Architects, Reliance Properties
A rendering of the building from the corner of Hornby Street and Robson Street. / SHoP Architects, BOP Architects, Reliance Properties
Renderings of the 35-storey tower proposed for 807-815 Hornby Street in Vancouver. / SHoP Architects, BOP Architects, Reliance Properties