Variable Mortgage Rates
Variable mortgage rates are essentially determined by commercial banks’ prime rates, which are mainly influenced by the Bank of Canada’s prime interest rate. Thus, an increase in the prime interest rate almost automatically leads to an equivalent increase in variable mortgage rates. The Bank of Canada raises its prime interest rate when it wants to fight inflation.
When you have a variable rate mortgage for the length of your term, your payments will fluctuate depending on interest rates. (Rates go up and down dependent on the bank’s prime lending rate, and can change from month to month.) When rates change, your payment amount will stay the same, but the amount that is applied to the principal will vary. e.g if interest rates fall, more of the payment will be applied to the principal – if they go up, you will pay more to interest and less to the principal, which means it will take longer to pay the mortgage.