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.

The post Variable Rate vs. Adjustable Rate Mortgages: Pros, Cons, & How Prime Rate Affects Your Payments appeared first on Jordan Thomson.

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The Bank of Canada has held its trendsetting interest rate at 5.0% for a third straight setting and talk of further increases has been all but silenced.

In the statement that came with the most recent rate announcement, The Bank offered a number of reasons for the decision to hold steady:

– higher rates are “clearly restraining spending”
– the economy “is no longer in excess demand”
– the general economic slowdown is reducing inflationary pressures

Even though The Bank said it will hike again, if necessary, most market watchers are looking into their crystal balls trying to predict when, and by how much, The Bank will be cutting rates.

The post COUNTDOWN TO RATE CUTS! appeared first on Jordan Thomson.

Your mortgage is up for renewal and the interest rate you’re being offered is a lot higher than expected and going to put your finances in a pinch. Are there any other options?

There may be! If you have at least 20% equity in your home, a 25 year or less amortization and your home value was less than $1Million when you bought it, you may be eligible for “insurable” rates. These rates are better than traditional conventional rates and can save you a bundle in interest and help lower your monthly payments. The catch is you can’t get them from your bank. You can only access them through a licensed mortgage broker with a mortgage finance company aka a monoline.

Check out my interview with the Business Development Manager at one of Canada’s leading monolines to learn more. And of course, reach out to me to see what I can do for you!

The post HOW TO GET A BETTER RATE ON YOUR MORTGAGE RENEWAL appeared first on Jordan Thomson.

The Consumer Price Index (CPI) rose 3.3% y/y in July, up from a 2.8% rise in June. The acceleration in headline inflation was widely expected due to a base-year effect on gasoline prices, as a sizeable monthly decline in July 2022 (-9.2%) no longer impacts the 12-month movement. Excluding gasoline, the CPI rose 4.1% from 4.0% in June.

The mortgage interest cost index (+30.6%) posted another record year-over-year gain and remained the most significant contributor to headline inflation. The all-items excluding mortgage interest cost index rose 2.4% in July.

The CPI rose 0.6% in July, following a 0.1% gain in June, mainly due to higher monthly prices for travel tours, with July being a peak travel month. On a seasonally adjusted monthly basis, the CPI rose 0.5%.

Food price inflation eased last month but remains sticky.

READ THE FULL ARTICLE HERE

The post THE LATEST INFLATION NUMBERS – WHAT DO THEY MEAN? appeared first on Jordan Thomson.

2023 is underway!

After an uncertain and tumultuous past year with the economy, mortgage rates and the real estate market, where are we now and what is expected in the coming months??

Higher interest rates continue to impact our real estate activity, inventory, affordability and home values which are continuing to experience a downward trend at the moment.

There are still many unknowns at this time including unemployment and inflation numbers, the US Fed direction with their rates, all which will impact the direction of our interest rates and for how long.

There is no doubt that change is the constant right now with more to come so stay tuned for further updates!

With each video, I strive to provide you with useful and up to date information to help you better understand and navigate the mortgage and real estate world we live in. My purpose is always to help and to make your financial decisions perhaps that little bit easier. One of my greatest joys is in knowing I helped at least one person today, and perhaps today that person is YOU!

CHECK OUT THE VIDEO HERE!

The post Current Real Estate and Interest Rate Update this Week appeared first on Jordan Thomson.

The post Top 5 Mortgage Stories of 2022/Round-Up!!! appeared first on Jordan Thomson.

Attention Canadian Homeowners and Homebuyers!

The Bank of Canada raised rates AGAIN September 7th, this time by three quarters of a percent, taking Prime rate to 5.45%! With interest rates on the rise, in fact a total increase of 3% i in the past 6 months, homeowners and home buyers are wondering, how high can they go?

The question now might better be… When Will These Rate Hikes END? Some info about where we are, where we might go and what you can do NOW!

The post When Will the Bank of Canada Stop Raising Rates? appeared first on Jordan Thomson.

The post Will rising mortgage interest rates affect your mortgage qualification? appeared first on Jordan Thomson.