Rates and interest
Variable rate
A rate set as prime plus or minus a discount, which moves when prime moves while your discount stays locked for the term.
A variable mortgage is priced by a formula: prime minus a discount you negotiate once and keep for the whole term. When prime moves, your rate moves. Your discount stays the same.
So 2 variable mortgages at the same rate today can still be different products. Each one follows its own lender's prime, and lenders don't always move prime by the same amount. Prime minus 0.90% at one lender and prime minus 0.25% at another can match this morning and drift apart later.
There are 2 kinds. An adjustable-payment variable changes your payment when the rate changes. A fixed-payment variable keeps the payment the same and changes the split between interest and principal, which brings in a trigger rate.
The penalty to break a variable is 3 months of interest at almost every lender. That's far cheaper than a fixed-rate interest-rate differential, and it's a good reason to consider variable that doesn't depend on any view of where rates are going.
Related terms
Fixed rate
An interest rate that stays the same for your whole term, compounded semi-annually as the Interest Act requires.
Prime rate
Each lender's own reference rate for variable lending, set with reference to the Bank of Canada's policy rate.
Trigger rate
On a fixed-payment variable mortgage, the rate at which your payment stops covering the interest and the balance starts growing.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
Sharp rates. The full picture.
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