A variable rate mortgage is priced as the prime rate plus or minus a fixed margin, so your rate moves with the Bank of Canada. With prime near 4.45% in 2026, understanding adjustable-payment vs fixed-payment variables — and the trigger rate — matters. Check today's source rate on our live rate tracker and model scenarios in our mortgage calculators.
A variable rate mortgage follows prime (about 4.45% in 2026), quoted as "prime minus" or "prime plus" a margin. Adjustable-payment versions change your payment when prime moves; fixed-payment versions keep the payment level but can reach a trigger rate where the payment stops covering interest. It suits borrowers who can handle movement. This is not financial advice.
Every variable rate in Canada is anchored to your lender's prime rate. Prime is not set by the Bank of Canada directly; instead lenders move it in step with the Bank's overnight rate. With the overnight rate at 2.25% and the usual 2.20% spread, prime sits at about 4.45% in 2026. Your discount or premium — such as "prime minus 0.60%" — is locked for the term, but the prime number underneath floats. When the Bank cuts, your effective rate drops within days; when it hikes, it rises just as quickly. Watch the prime rate page and the next rate decision on July 15, 2026 to anticipate moves.
Not all variable mortgages behave the same way. An adjustable-payment variable (sometimes called a true variable or ARM) recalculates your payment each time prime changes, so your cash flow tracks rates directly. A fixed-payment variable keeps your regular payment level even as prime moves; instead, the split between interest and principal shifts. When rates rise, more of each payment goes to interest and less to principal, which slows how fast you pay down the loan. Read your commitment letter carefully — the label on the product tells you how much payment surprise you are signing up for.
Fixed-payment variable mortgages carry a risk unique to them. As prime climbs, more of your level payment is consumed by interest until you reach the trigger rate — the point where the payment no longer covers all the interest owed. Beyond that, no principal is repaid and any unpaid interest can be added to your balance (negative amortization). If the balance grows back to your original loan amount or a set threshold, you hit the trigger point, and the lender typically requires you to raise your payment, make a lump-sum prepayment, or convert to a fixed rate. Adjustable-payment variables avoid this because the payment rises to keep pace.
| Feature | Variable rate |
|---|---|
| Follows Bank of Canada | Yes — moves with prime |
| Break penalty | Usually ~3 months' interest |
| Payment certainty | Lower (or trigger-rate risk) |
| Historically | Often cheaper over time, but not guaranteed |
The upsides are a typically lower starting rate, a smaller penalty if you break early, and savings if the Bank cuts. The downsides are budgeting uncertainty and, on fixed-payment products, the trigger-rate trap. Every variable mortgage must still pass the stress test — the higher of your contract rate plus 2% or 5.25%.
A variable rate tends to fit borrowers with breathing room in their budget who can absorb a higher payment without stress, those who may sell or refinance before the term ends and want the smaller penalty, and those who believe rates are more likely to fall than rise. If a payment jump would put your household under pressure, a fixed rate may serve you better. Compare the two side by side and run the numbers before you commit.
A variable rate is quoted as prime plus or minus a set margin — for example prime minus 0.60%. Prime is about 4.45% in 2026 (the Bank of Canada overnight rate of 2.25% plus the standard 2.20% spread), so it moves whenever the Bank changes policy.
An adjustable-payment variable mortgage changes your actual payment when prime moves. A fixed-payment variable mortgage keeps the payment the same and instead shifts how much goes to interest versus principal, which is why it can hit a trigger rate if rates rise too far.
On a fixed-payment variable mortgage, the trigger rate is the interest rate at which your fixed payment no longer covers all the interest owed. Past that point no principal is repaid and unpaid interest can be added to the balance.
The trigger point is when your mortgage balance grows back to or above your original loan amount (or a set threshold) because unpaid interest is being added. At that stage the lender usually requires you to increase your payment, make a lump sum, or convert to a fixed rate.
A variable rate suits borrowers with room in their budget who can absorb higher payments, who value a lower break penalty (usually about three months' interest), and who believe rates are more likely to fall than rise. It is riskier if a payment increase would strain your household.