If you’ve been shopping for a mortgage, you’ve likely come across the terms ‘variable rate’ and ‘adjustable rate’ and wondered, aren’t those the same thing? It’s a common question I hear from clients, and honestly, it’s a fair one. The two products are closely related, but they work quite differently in practice, and choosing the wrong one for your situation can have a real impact on your budget and financial stress levels.
After more than 12 years helping clients navigate purchases, refinances, renewals, and everything in between, I want to break this down in plain language so you can make a confident, informed decision.
First, Let’s Talk About Prime Rate
Both variable and adjustable rate mortgages are tied to your lender’s prime rate, the benchmark interest rate that Canadian banks use as a starting point for many of their lending products. When the Bank of Canada raises or lowers its overnight lending rate, lenders typically follow suit by adjusting their prime rate accordingly.
Your mortgage rate is expressed as prime plus or minus a discount — for example, Prime – 0.40%. So if prime is 4.45%, your rate would be 4.05%. When prime moves, your mortgage rate moves with it. This is the foundation of both variable and adjustable rate products . What changes is how that rate movement affects you month to month.
Variable Rate Mortgages (VRM): Your Payment Stays the Same
With a variable rate mortgage, your regular payment amount stays fixed regardless of what happens to prime rate. What changes is how that payment is allocated between principal and interest.
Here’s a simple way to think about it: imagine your monthly payment is $2,000. If prime rate drops, more of that $2,000 goes toward paying down your principal — you’re making faster progress on your mortgage. If prime rate rises, more of that $2,000 goes toward interest, and less chips away at what you owe. Your payment stays the same on the surface, but your amortization — the time it takes to pay off your mortgage — can stretch or shrink based on where rates go.
⚠️ An Important Note on Trigger Rates
Variable rate mortgages come with something called a trigger rate , the point at which your fixed payment no longer covers even the interest portion of your mortgage. If prime rises enough to hit this threshold, your lender may require you to increase your payment, make a lump sum payment, or convert to a fixed rate. This caught many homeowners off guard during the rapid rate increases of 2022–2023, so it’s something I always make sure my clients understand upfront.
Who Is a Variable Rate Mortgage Good For?
- Clients who value payment stability. If knowing exactly what’s coming out of your account each month helps you sleep at night, the predictable payment structure of a VRM offers that comfort, even as rates fluctuate.
- Those with tight but consistent budgets. Because the payment doesn’t change immediately with rate moves, you have more short-term predictability for budgeting purposes.
- People who don’t want to actively monitor their mortgage. The ‘set it and forget it’ payment appeals to busy clients who aren’t watching rates daily.
Pros of a Variable Rate Mortgage
- Payment amount stays constant, making monthly budgeting easier
- Historically, variable rate products have often outperformed fixed rates over time
- Can be converted to a fixed rate at any time if you want more certainty
- Typically lower penalty to break compared to a fixed rate mortgage
Cons of a Variable Rate Mortgage
- Your amortization can lengthen significantly if rates rise, meaning it takes longer to pay off your home
- Trigger rate risk — if rates rise too far, your lender may require payment adjustments
- Less transparent — it can be harder to track how much you’re actually paying down your mortgage
- May not be suitable if you’re very close to retirement or on a fixed income
Adjustable Rate Mortgages (ARM): Your Payment Moves With Prime
An adjustable rate mortgage works differently in that your payment amount changes directly when prime rate changes. If prime goes up, your payment goes up. If prime goes down, your payment goes down. What stays constant is your amortization schedule , you’re always on track to pay off your mortgage within the original timeframe.
In practical terms, this means more financial exposure in the short term if rates rise, but your mortgage payoff timeline remains predictable and you’re never at risk of a trigger rate situation.
Who Is an Adjustable Rate Mortgage Good For?
- Clients with flexible cash flow. If your income can absorb fluctuating payments, whether you’re self-employed, have investment income, or have significant savings , an ARM gives you full transparency on where rates stand.
- Those who want to stay on track with their amortization. Your payoff date doesn’t move. Every payment keeps you exactly on schedule, which is reassuring for clients focused on being mortgage-free by a certain age.
- Rate-watchers and financially engaged borrowers. If you’re the type who follows economic news and wants your mortgage to immediately reflect rate improvements, an ARM responds in real time.
Pros of an Adjustable Rate Mortgage
- Your amortization stays on track — no surprise extended payoff timelines
- No trigger rate risk, since your payment adjusts to always cover principal and interest
- Immediate benefit when prime rate drops — your payment decreases right away
- Fully transparent — you always know exactly how your payment breaks down
Cons of an Adjustable Rate Mortgage
- Payment fluctuations can make monthly budgeting more challenging
- Rising rates directly impact your cash flow — sometimes significantly
- Can create stress for clients on tight or fixed incomes during rate hike cycles
- Requires more financial flexibility and ideally a cash buffer for rate volatility
Quick Comparison at a Glance
Variable Rate Mortgage (VRM)
- Payment: Fixed
- What changes: Principal vs. interest split
- Amortization: Can stretch or shrink with rate changes
- Trigger rate risk: Yes
- Best for: Consistent budgeters, payment-sensitive clients
Adjustable Rate Mortgage (ARM)
- Payment: Fluctuates with prime rate
- What changes: Your actual payment amount
- Amortization: Stays on original schedule
- Trigger rate risk: No
- Best for: Flexible income earners, amortization-focused clients
Which Lenders Offer Which Product?
One of the things clients are often surprised to learn is that not every lender offers both products, and in many cases, the type of lender you work with will determine which option is even available to you. Here’s a general overview:
The Big Banks (e.g., TD, RBC, BMO, CIBC)
Canada’s major banks predominantly offer Variable Rate Mortgages (VRM). Scotiabank is an outlier as they actually offer the Adjustable Rate Mortgage (ARM). Your payment stays fixed while the principal/interest split shifts with prime rate. This is the product most Canadians are familiar with, as the big banks hold the largest share of the mortgage market. If you’ve gotten a variable rate through your bank in the past, this is almost certainly what you had.
Monoline Lenders (e.g., First National, MCAP, RMG, Lendwise)
Monoline lenders — mortgage-only lenders accessible exclusively through mortgage brokers — typically offer Adjustable Rate Mortgages (ARM). Your payment adjusts directly with prime rate, and your amortization stays on track. Monolines are well known for offering very competitive rates, and the ARM structure is standard across most of them. This is one of the many reasons working with a broker opens doors that going directly to a bank simply doesn’t.
Credit Unions (e.g., First West Credit Union, Vancity, Servus, Coast Capital)
Credit unions generally follow the big bank model and offer Variable Rate Mortgages (VRM) with fixed payments. They can be a solid option, particularly for self-employed borrowers or those with more complex financial profiles.
My Two Cents After 12+ Years
There’s no universally ‘right’ answer here , it comes down to your financial situation, your personality, and your appetite for uncertainty. Over my career, I’ve seen clients thrive with both products. What matters most is that you go in with a clear understanding of how each one works, and that your mortgage is structured to support your life, not add stress to it.
If you’re someone who lies awake worrying about whether your payment will change next month, a variable rate mortgage’s payment stability might be worth more to you than the transparency of an adjustable rate. If you’re a business owner or investor with variable income who wants to ride rate movements in real time, an ARM might be a better fit.
Either way, this is a conversation worth having with a mortgage professional who takes the time to understand your full picture , not just your rate options.
Have questions about which product is right for your situation? I’d love to help. Reach out anytime.
Frequently Asked Questions
What is the difference between a variable rate and adjustable rate mortgage in Canada?
Both are tied to your lender’s prime rate, but they respond to rate changes differently. With a variable rate mortgage (VRM), your payment amount stays fixed , what changes is how much of that payment goes toward principal versus interest. With an adjustable rate mortgage (ARM), your payment amount changes directly when prime rate moves, but your amortization schedule stays on track.
Which banks and lenders offer variable rate vs. adjustable rate mortgages in Canada?
Canada’s major banks (TD, RBC, BMO, CIBC) and most credit unions offer variable rate mortgages with fixed payments. Monoline lenders — such as First National, MCAP, and RMG, which are only accessible through mortgage brokers — typically offer adjustable rate mortgages where the payment fluctuates with prime rate.
What happens to my mortgage payment when the Bank of Canada raises or lowers interest rates?
It depends on your mortgage type. If you have a variable rate mortgage (VRM), your payment stays the same but less of it goes toward paying down your principal when rates rise, potentially extending your amortization. If you have an adjustable rate mortgage (ARM), your payment increases or decreases directly with each rate change, keeping your amortization on its original schedule.
Is a variable rate or adjustable rate mortgage right for me?
A variable rate mortgage tends to suit clients who value payment consistency and want predictable monthly budgeting, even as rates fluctuate. An adjustable rate mortgage is often a better fit for those with flexible income who want their payments to reflect rate changes immediately and prefer to stay on a fixed amortization schedule. The best choice depends on your financial situation, income stability, and comfort with uncertainty, something worth discussing with a mortgage professional.
What is a trigger rate on a variable rate mortgage?
A trigger rate is the point at which your fixed payment on a variable rate mortgage no longer covers the interest portion of your loan. If prime rate rises enough to reach this threshold, your lender may require you to increase your payment, make a lump sum contribution, or convert to a fixed rate. It’s an important risk to understand before choosing a VRM, and one your mortgage broker should walk you through in advance.
This post is intended for informational purposes and reflects general mortgage concepts applicable in Canada. Mortgage products and terms vary by lender. Always consult with a licensed mortgage professional to discuss your individual circumstances.
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