Skip to main content

Variable Interest Rate Mortgages

A variable interest rate fluctuates throughout a mortgage term with changes in the market. Variable interest rates are typically tied to a bank or lender's prime lending rate. The mortgage payments for variable interest rate mortgages can be fixed, or they can change if the interest rate changes - it depends on the lender and type of product.

How it can benefit you:

  • Historically, variable rates have been lower than fixed rates and they could save you money.
  • If rates go down, a larger portion of your payment goes towards principal, helping you pay off your mortgage faster.
  • Depending on the mortgage you choose, your regular payment can stay the same even if rates change.

Some risks and disadvantages:

  • If market interest rates go up during the term, the interest rate would increase and result in more interest being paid to the lender. As a result, by the end of the term more interest may be paid than if a fixed rate had been chosen.
  • Depending on the lender and the terms, the payment could increase if interest rates increase.

Why are variable rates attractive?

Often, interest rates on variable rate mortgages are lower than the fixed rates offered by a bank or lender. Whether you are better off with a variable rate versus a fixed rate depends on the movement of the market during the term of the mortgage.

Depending on the variable mortgage product you choose, this is how your mortgage payment can change if/when rates change:

  • The payment goes up or down every time the rates change.
  • Payment stays the same when rates drop and more principal is paid down.
  • Payment does not change unless market rates increase to 'trigger' point (indicated in agreement.) Unless stated otherwise in agreement.

*Source Financial Consumer Agency of Canada