What is a variable-rate mortgage?

While initial rates on variable-rate mortgages are often lower than those offered for fixed-rate mortgages, borrowers are exposed to the risk of increases in the lender’s prime rate, which itself is tied to the Bank of Canada’s overnight rate. When rates go up, the payments on a variable-rate mortgage will increase, or they could stay the same but a greater proportion of each payment will go towards interest rather than the mortgage principal (the amount borrowed), slowing the borrower’s progress toward paying off the loan.

Example: “Emily expected interest rates to decline, so she chose a variable-rate mortgage with an option to convert to a fixed rate if her outlook changed.”

Read more on variable-rate mortgages:

• A guide to five-year variable mortgage rates
  Five-year variable-rate mortgages offer potential cost savings to buyers who can manage changes in market interest rates. Here’s how to know if they are for you.
• The complete guide for first-time home buyers in Canada
  How much can you afford on your first home? Should you buy or continue renting? We answer these questions and more in our stress-free guide for first-time buyers.
• I keep hearing interest rates may rise. What would that mean for my mortgage
  A Certified Financial Planner helps a reader get clear on what a rise in interest rates would mean for their mortgage and personal finances.
• Now’s not the time to switch to a fixed-rate mortgage
  As interest rates climb, variable mortgage rate holders may start to panic. Here’s why you should avoid the temptation of going fixed right now.
• Should you break your mortgage?
  Breaking your mortgage to get a better interest rate could save you thousands of dollars. Here’s what you should consider before taking that step.