What Is a Variable-Rate Mortgage?

Variable Rate Mortgages

Are you trying to get your head around what a variable-rate mortgage is?

When looking at getting a mortgage, it can be difficult to make sense of all of the technical jargon that lenders use. The difficulty starts with having to work through the math of different interest rates, repayment periods, and deposit sizes.

But another big area that a lot of people struggle with is comparing a variable-rate mortgage with a fixed-rate mortgage. Given that mortgages usually last for decades, making the right decision about fixed vs variable-rate mortgage can have a long-term impact.

In this article, we are going to set things right for you. We will take you through exactly what a mortgage interest rate is and how a variable rate is different from a fixed rate. We will also give you some helpful advice on which types of rates are useful in different situations.

Fixed vs Variable-Rate Mortgage

There are two main types of mortgages: fixed-rate mortgages and variable-rate mortgages. There is also the option of a hybrid adjustable-rate mortgage.

We will explain the main features of a variable-rate mortgage and compare them with the other two types.

Variable-Rate Mortgage

A variable-rate mortgage uses variable rate interest.

What this means is that the interest rate you agree to at the start of your mortgage can change throughout the course of your term, unlike a fixed interest rate mortgage. The changes that occur will be dependent upon the market as a whole.

There are several different factors that will affect whether a mortgage rate will change, including:

  • National economic growth
  • Inflation
  • The interest rate set by the federal reserve
  • The bond market
  • The housing market

Variable interest rate mortgages change as the bank’s prime rates increase or decrease. The rate of the mortgage is directly linked to the prime rate set by the bank of Canada.  That being said, only the amount you pay towards the principal and interest fluctuates.  Your monthly payment remains the same.

If interest rates rise, less of your mortgage payments are applied to the principal, and more are applied to interest.  Conversely, if interest rates drop, more of your payment gets applied to the principal.  When this happens you can save money, thousands of dollars actually.

If your mortgage rate does change, your lender will notify you.


One of the major benefits of a variable-rate mortgage is that you can benefit from the positive movement in the market. This is something you won’t get if you take a fixed-rate mortgage.

Another positive is that historically, Variable rate mortgages have outperformed 5-year fixed-rate mortgages. In fact over the last couple of decades, a VRM has allowed many homeowners to pay off their mortgage faster.


The other side of the coin with a variable-rate mortgage is that you will have to ride the market through any dips it may experience. This means that if mortgage rates go up, you will pay more in interest.  If you are the kind of person who loves the peace of mind, a variable mortgage might not be the right choice for you.

Fixed-Rate Mortgage

A fixed-rate mortgage is far simpler than a variable rate mortgage. It does provide more certainty than a variable-rate mortgage, allowing for more straightforward financial planning.

But, on the other hand, you are locked into an interest rate that may end up being higher than market rates if the market improves.

A mortgage broker can give you expert advice on the likely movement of the mortgage market in the future. This will allow you to make a more informed decision about whether a fixed-rate mortgage or variable-rate mortgage is a smart option.

Hybrid Mortgage

A further possibility is to use a hybrid mortgage, which is often called a split mortgage. What this means is that some of your mortgage will be repaid according to a fixed rate and the other part will be repaid according to a variable rate.

The idea behind this hybrid setup is to maintain some certainty in your loan, while also giving yourself the chance to benefit from any improvement in the market. It’s a bit like hedging your bets.

Best Variable-Rate Mortgages

The mortgage market can be very complex and there’s no simple answer as to what the best mortgage deal is. Variable-rate mortgages, in particular, are more complex because you have to take into consideration any future fluctuations in the market.

The best variable-rate mortgages will also depend on:

  • Property value
  • Deposit size
  • Credit rating
  • Income
  • Size and frequency of repayments

This is why it is a good idea to use a mortgage broker. A mortgage broker can help you work out what options are available on the market, as well as what will suit your personal situation best.

We specialize in helping our clients find mortgages in situations when they have already been turned away by lenders. We can even help you get a loan with bad credit.

The key to finding the best variable-rate mortgage is having expert knowledge of the market. Most people approach a mortgage by just going to the big banks and taking the bank’s initial offer.

Mortgage brokers have access to a wide variety of lenders, products, terms, and amortizations.  Using a mortgage broker as an alternative to traditional big banks almost always yields a better approval for clients. They have the ability to get lenders to compete for your business in turn, getting you the best approval you qualify for. Not just what the bank feels like approving you for that day.

Expertise Is Priceless

Taking out a mortgage is probably the best financial investment you can make in your lifetime. But it can also be a bit daunting. If you get a bad rate, you can be locked into an overpriced mortgage that eats into your long-term financial return.

Unfortunately, many people are unable to even be approved for a mortgage because of strict regulations and lender policies. A mortgage broker can be a lifesaver in helping you navigate the complex mortgage market and ensure that you do actually get a mortgage.

We have the expertise to help you achieve your dream of owning a home by finding and securing you the best variable rate mortgage.

So, if you want to make a smart and lucrative financial investment, why not start your application to see what rates we can get for you? We’ll be more than happy to help.