What is a variable rate mortgage?

A variable rate mortgage is a mortgage which essentially floats with the banks prime rate (which is in turn tied to the Bank of Canada’s overnight lending rate). The term for a variable rate mortgage is usually a 5 yr term, for which your discount from the banks’ prime rate would be guaranteed. As the bank’s prime rate increases or decreases (the bank of Canada meets 8 set times a year so you have 8 possible changes to rate a year) your interest rate and the amount you pay every month will also adjust. Studies have shown that more than 75% of the time over the last 20 yrs it has made sense to take a variable rate vs taking a 5 yr fixed rate over the same time frame.