Variable-Rate Mortgage

A variable-rate mortgage (VRM) has an interest rate set as a discount or premium against the lender's prime rate (e.g. prime minus 0.50%). When the Bank of Canada changes its overnight target, lenders typically adjust their prime rates within days, and your mortgage rate moves accordingly. There are two flavours: adjustable-payment VRM (your monthly payment changes as rates move) and fixed-payment VRM (your payment stays the same; the principal/interest split shifts). Fixed-payment VRMs can hit a trigger rate where the payment no longer covers interest — at that point, the lender will require you to increase the payment, switch to a fixed rate, or extend amortisation. VRMs historically have lower lifetime costs than fixed-rate mortgages but expose the borrower to rate-cycle risk. Breakage penalties are usually just three months' interest — much lower than fixed-rate IRD.