Potential savings. Maximum flexibility.

This is a crucial distinction. With a standard variable-rate mortgage, your monthly payment amount stays the same even if the prime rate changes. Instead, the portion of your payment going to interest vs. principal adjusts. With an Adjustable Rate Mortgage (ARM), your actual payment amount will increase or decrease with every change in the prime rate.

For variable mortgages with fixed payments, the 'trigger rate' is a critical concept. It's the interest rate at which your fixed payment is no longer enough to cover the interest portion of your loan. If the prime rate rises enough to hit your trigger rate, your lender will typically require you to either increase your monthly payment, make a lump-sum payment, or convert to a fixed rate to avoid your mortgage balance increasing.

A variable rate is often a great choice if you have a higher tolerance for risk and believe interest rates will remain stable or decrease. Historically, homeowners with variable rates have often paid less interest over the long term. It's also beneficial if you want a lower penalty for breaking your mortgage early, as the penalty is typically just three months' interest.

The primary risk is uncertainty. A sudden rise in interest rates can significantly increase your payments (with an ARM) or dramatically slow down how quickly you pay off your principal (with a fixed-payment variable). It requires a comfortable budget that can handle potential payment increases without financial strain.

Yes. Most variable-rate mortgages in Canada are convertible. This valuable feature allows you to lock into a fixed-rate mortgage with your current lender at any time during your term, usually without paying a penalty. This provides a safety net if you become uncomfortable with rising rates and want the stability of a fixed payment.