Variable-Rate Mortgage
A mortgage where the interest rate is tied to Prime Rate and moves with every Bank of Canada Policy Rate decision.
A variable-rate mortgage (VRM) ties your interest rate to each lender's Prime Rate, expressed as 'Prime minus X%' where the discount stays fixed for the term. When the Bank of Canada changes its Policy Rate, Prime moves in lockstep, and your rate adjusts on the next billing cycle. Variable-rate mortgages in Canada fall into two subtypes: true variable (payment adjusts with each Prime change) and fixed-payment variable (payment stays flat but the principal/interest split shifts — common at Big 5 banks). The fixed-payment subtype introduces 'trigger rate' risk: once interest owed exceeds your fixed payment, the lender either raises the payment or converts to fixed. Historically, variable has beaten fixed in about 80% of 5-year windows, but borrowers who chose variable going into the 2022–2024 hiking cycle saw the opposite.
Related Terms
A mortgage where the interest rate is locked for the full term, keeping your monthly payment constant regardless of Bank of Canada decisions.
The base interest rate each Canadian lender charges its most creditworthy customers, typically set about 2.00% above the Bank of Canada Policy Rate.
The rate at which a fixed-payment variable mortgage's monthly payment no longer covers the interest owed — forcing a payment increase or conversion.
A variable-rate mortgage subtype where your monthly payment adjusts (not just the principal/interest split) each time Prime Rate changes.