The variable rate mortgage is the opposite of the fixed rate mortgage. Your mortgage interest rate could go up or down during the term of your mortgage. In this case, the term is usually only 5 years for this rate.

The interest rate for the variable rate mortgage is based on what is the current Prime rate. The Prime rate is the base lending rate the banks and trust companies use to lend. It can be reviewed and or changed numerous times a year. The Bank of Canada reviews and analyzes the current state of the economy and decides if the rate should change. This will be mentioned in the news and you will not have an option to stop this from happening. Once Prime changes and if it affects your interest rate of your mortgage the lender will often inform you of your new mortgage rate. If your mortgage rate increases, your mortgage payment will stay the same but the portion of the payment towards interest increases and the portion of your payment towards the principal decreases. The opposite happens if the interest rate decreases, you are in fact paying the mortgage principal down faster.

Generally speaking, a variable rate mortgage can be really rewarding if Prime rate is low and continues to be lowered. One can ultimately pay down their mortgage faster than the fixed rate mortgage. But you are taking the risk that rates will remain in your favour. This risk can be stressful for someone and the fixed rate product might be best for them.