About Variable Rate Mortgages
Canadian variable mortgages are priced as a discount or premium to each lender's prime rate (e.g., Prime − 0.65%). Lenders move prime within hours of each Bank of Canada announcement, so your rate moves up to 8 times per year — once per scheduled BoC decision.
There are two flavours. A true variable keeps your monthly payment unchanged when prime moves, and instead changes how much of each payment goes to interest vs. principal. An adjustable-rate mortgage (ARM) re-amortises the payment itself every time prime moves. Adjustables give you faster transparency on the real cost; variables give you a steadier monthly cash-flow but can hit a 'trigger rate' if prime rises far enough.
Variable usually beats fixed over long horizons because it removes the lender's term-premium. But the path matters. Borrowers who took variable in 2022 lived through a 4.75-percentage-point hike cycle that crushed many household budgets. Run a stress scenario at +2% before picking variable.
Pros
- Lowest break penalty — typically just 3 months' interest, regardless of remaining term
- Historically out-performs fixed over most 5-year windows
- Benefits immediately when the Bank of Canada cuts
- Easy to convert to fixed mid-term with most lenders
Cons
- Rate (and often payment) moves up to 8 times per year
- Trigger-rate risk on true variables when prime rises sharply
- Stress test still applies — qualifying rate doesn't drop with prime
- Requires emotional bandwidth — you'll watch every BoC announcement
Who it suits: Borrowers with stable, growing income, an emergency fund equal to 3–6 months of payments at +2%, and the temperament to ride out rate moves.