Variable-Rate Mortgages

Learn about variable-rate mortgages and see the best mortgage rates.

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Home Value
The current purchase price or appraised value of your home
Rate type
The type of the mortgage you are looking for
Down payment
The portion of the purchase price you will be paying upfront
Current mortgage
The remaining amount on your current mortgage

What is a variable-rate mortgage?

A variable-rate mortgage has an interest rate that fluctuates with the prime rate of your lender during your mortgage term. However, if you have a fixed-payment variable rate, your monthly payments will remain constant even if your mortgage rate fluctuates. For example, if interest rates were to fall, the amount of your payment going towards your principal repayment would increase while the interest portion would decrease. Similarly, if rates increase, more of your payment will go towards the interest.

One advantage of having a variable-rate mortgage is that prepayment penalties are typically limited to just three months' interest should you need to break your mortgage early. The penalties on fixed-rate mortgages, on the other hand, are calculated using the Interest Rate Differential (IRD), which can end up costing borrowers tens of thousands of dollars to break their mortgage.

Your lender may allow you to exercise an option to “lock in” a fixed rate at any time during your mortgage term. This is useful if you expect mortgage rates to rise and want to lock in your rate for the remainder of your term.

You can calculate your mortgage payments based on different interest rate scenarios using a Mortgage Payment Calculator.

Learn more about variable-rate and fixed-rate mortgages.

What factors creates variations in mortgage rates?

Mortgage rates can change based on the Bank of Canada’s overnight rate. The prime rate represents the target overnight rate based on how banks borrow and lend money amongst themselves over the course of a day. During multiple times in a financial year, the Bank of Canada announces its intention to raise, drop or maintain the prime rate.

Following a rise in the prime rate, financial institutions generally increase their mortgage rates, though not always. If you have a fixed-rate mortgage, this won’t impact your mortgage payments. If you hold a variable-rate mortgage, you may see an instant change in your interest rate. Please remember that the prime rate fluctuations influence more than mortgages rates, it also affects savings accounts, credit lines and other financial products.

Here’s everything you must be wondering about variable-rate mortgages.

Is a variable-rate mortgage better than a fixed-rate mortgage?

Choosing the best mortgage for you depends on your mortgage affordability. When you choose a fixed-rate mortgage, your monthly mortgage payments will stay the same for the term of your mortgage, allowing you to predict your mortgage costs during the mortgage term and budget accordingly. Fixed-rate mortgages are generally higher than variable-rate mortgages.

When you have a variable rate mortgage, your mortgage rate will change with the prime lending rate set by your lender. If the interest rate decreases multiple times during the course of your mortgage term, you can pay off your mortgage principal faster. A variable-rate mortgage also means that the amount that goes to your mortgage principal will fluctuate when the rate increases or decreases, even though your mortgage payment amounts remain the same. This means that you’ll face surprises during your mortgage term, as the rates won’t be stable or constant.

You can calculate your Mortgage Affordability to see what kind of mortgage scenarios work for you. A Mortgage Payment Calculator can help you see what your future mortgage payments will look like.

When it comes to picking a mortgage, comparing multiple quotes can help you find the perfect fit. Compare the best mortgage rates on RATESDOTCA today.

How do you lock your interest rate?

If you have a variable-rate mortgage, your interest rate can vary throughout the term. This makes it important for you to lock-in a favorable interest rate if you are allowed to do so by your lender. Locking the interest rate guarantees a certain interest rate for a specific period, normally between 30 and 60 days.

Most lenders allow you to lock your interest rate as soon as your initial loan is approved. Some lenders may charge a fee to lock in your interest rate. Always ask questions so you know what charges to expect from your lender. Make sure you consult with an experienced mortgage broker and read your mortgage terms and conditions thoroughly.

What does my mortgage payment include?

As a first-time homebuyer you must be wondering where does your whole monthly mortgage payment go! Your monthly mortgage payment goes toward the following costs:

  • Principal amount
  • Interest charges
  • Homeowners insurance
  • Property taxes
  • CMHC, if you put down less than 20% on your home

If you want to pay more towards your principal amount, check the prepayment options in your mortgage contract to pay off your principal faster.

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Find a mortgage broker

Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.

Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.