Skip to main content
Mortgage Squad Advisors
Rates & pricing

Variable-rate mortgage

Definition

A mortgage where your rate floats with the lender's prime rate (set off the Bank of Canada overnight rate).

Payments either change with rate moves (adjustable) or stay fixed with more/less going to principal (variable).

There are two flavours. With an adjustable-rate mortgage (ARM) your payment moves up or down each time prime changes. With a true variable, the payment stays fixed but the split between principal and interest shifts — and if rates rise far enough you can hit your 'trigger rate', where the payment no longer covers interest.

Variable rates are quoted as prime plus or minus a spread (e.g. prime − 0.90%). When the Bank of Canada cuts the overnight rate, prime usually follows within days and your cost drops; when it hikes, it rises.

Historically variable has beaten fixed more often than not, but it trades certainty for exposure. The right choice depends on your risk tolerance, cash-flow cushion, and where the rate cycle is — which is exactly the conversation to have before you lock anything in.

Sources

  1. Key interest rates (policy interest rate) (Bank of Canada)
  2. Choosing a mortgage that is right for you (Financial Consumer Agency of Canada)
Related on Mortgage Squad Advisors

Related terms

Ask Maya about Variable-rate mortgage

Instant answers · 50+ languages · no credit pull

Estimates only — a licensed advisor confirms your file. FSRA #13737.Open full chat

Maya · 24/7 AI assistant

What does variable-rate mortgage mean for you?

Ask Maya in plain English, or in any of 50+ languages. Or call us.

Ask Maya about Variable-rate mortgageChat with MayaCall us

More on Rates & pricing

All terms →

Blended rate

A single rate that combines your existing mortgage rate with the lender's current rate on new money (or on a new term), weighted by the amounts involved. Lenders offer it when you add funds mid-term or port to a bigger mortgage, so you avoid a full prepayment penalty.

Fixed-rate mortgage

Your interest rate is locked for the entire term — typically 1 to 10 years, with 5-year fixed being the Canadian default. Predictable payments, but breaking early triggers IRD penalties.

Prepayment privilege

The % of your original principal you can pay down each year without penalty, plus any allowed payment increase. Typical: 10/10, 15/15, 20/20. Better privileges = faster mortgage-free.

Rate hold

A lender's promise to honour a specific rate for a set period while you shop or wait to close, commonly 90 to 120 days (FCAC notes 60 to 130 days, depending on the lender). If rates rise, you keep the held rate; if they fall, many lenders will give you the lower rate.

Prime rate

The benchmark rate each Canadian bank sets for pricing variable-rate mortgages, HELOCs and lines of credit. The big banks' prime normally moves in step with the Bank of Canada's policy rate. As of the Bank's September 2, 2026 decision, the policy rate is 2.25% and big-bank prime is 4.45%.