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Understanding Mortgages in Canada: Static vs. Adjustable Variable Rates

Welcome to our blog where we dive into the intricacies of the Canadian mortgage landscape! Today, we're unpacking the key differences between two popular types of mortgages: Static Variable Rate Mortgages and Adjustable Variable Rate Mortgages. Navigating through these options can be a bit daunting, but understanding their distinctions is crucial in making an informed decision that suits your financial goals.


What is a Variable Rate Mortgage?

Before delving into the specifics, let's first understand what a variable rate mortgage is. In essence, a variable rate mortgage is one where the interest rate may fluctuate based on market conditions, typically following the prime rate set by lenders. This rate changes can influence your monthly payment amount.


Static Variable Rate Mortgages

  • Definition A static variable rate mortgage, sometimes referred to as a fixed-payment variable rate mortgage, offers a fixed monthly payment for the duration of the term.

  • Interest Rate Fluctuations: While the interest rate may vary, your monthly payment remains the same. If interest rates decrease, more of your payment goes towards the principal; if they increase, more goes towards interest.

  • Pros and Cons: This type of mortgage provides stability in monthly budgeting but can result in less principal reduction if rates rise significantly.


Adjustable Variable Rate Mortgages

  • Definition: An adjustable variable rate mortgage features a monthly payment that changes in accordance with fluctuations in the interest rate.

  • Payment Adjustments: Your payment amount increases or decreases based on the current interest rate. This means your payments could change periodically throughout the term.

  • Pros and Cons: The adjustable nature allows you to potentially benefit from lower rates (lower payments), but it also means less predictability in budgeting.


Comparative Analysis

  • Risk Tolerance: Adjustable rate mortgages are typically chosen by those with higher risk tolerance, as they're willing to bet on interest rates staying low. Static variable rate mortgages appeal to those seeking consistent payments.

  • Long-Term Cost Implications: The overall cost of borrowing can vary significantly between these two types, depending on interest rate trends.

  • Market Predictions: Borrowers often base their choice on their predictions or expectations of future market trends.



Choosing between a static and adjustable variable rate mortgage in Canada depends on your financial situation, risk tolerance, and expectations for future interest rates. Contact me to chat more about understanding which option aligns best with your long-term financial goals.

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