Static-Rate Variable Mortgage

A static-rate variable mortgage is a variable-rate mortgage whose payment stays the same while the rate moves, so the split between interest and principal inside each payment shifts as the lender's prime rate changes. Also called a fixed-payment variable mortgage, it differs from an adjustable-rate variable mortgage, where the payment itself rises or falls.

Both products are tied to the same benchmark: the lender's prime rate, which moves with the Bank of Canada policy rate. The difference is entirely in what adjusts — the payment amount or the mix inside it.

How the payment and balance behave

The lender recalculates the interest portion each period at the current rate and applies whatever remains to principal. When prime falls, more of each payment goes to principal and the mortgage pays off faster. When prime rises, more goes to interest and less to principal, which stretches the effective amortization.

Lenders set a trigger rate: the point at which the fixed payment no longer covers the interest owed. If it is reached, the lender typically asks the borrower to increase the payment, make a lump-sum payment, or convert to a fixed rate. Without one of those steps the balance could grow — a situation known as negative amortization. OSFI's Guideline B-20 sets expectations for how federally regulated lenders manage this exposure.

Why it matters to a borrower

• The payment is predictable month to month, which helps with budgeting.
• Rate relief still arrives when prime falls, but as faster principal reduction rather than a smaller payment.
• Amortization quietly changes, so the payoff date can drift.
• Qualifying still runs through the federal mortgage stress test, so the contract rate is not the rate used to test affordability.

What to confirm before signing

Ask how the trigger rate is calculated, what happens if it is hit, whether the payment can be raised voluntarily, and how prepayment privileges apply. Compare total cost against a fixed-rate mortgage and against an adjustable-rate variable product using a fixed vs variable calculator, and see our guide to fixed and variable rates.