Time to Rethink a Variable Rate Mortgage?

May 9, 2024
  • With the Bank of Canada expected to start cutting interest rates in the later half of 2024 is it time to revisit variable rate mortgages?
  • TD Bank introduces a deeply discounted 5 year variable of Prime minus 1.01% (6.19%)
  • Arguments for and against a variable rate mortgage right now


Unusual Trend in 2021

In 2021 Canadian mortgage borrowers did something very unusual and out of character, they opted for variable rate mortgages. Like we had never seen before historically about one in every five mortgages arranged in Canada is a variable rate mortgage.

But in 2021, when rates were low Canadians chose variable rate mortgages at a rate of two out of every five. And really spurred on by three factors.

  1. Number one, at that time, variable rate  mortgages were too hard to ignore. You could get a variable rate at about one and a half percent.
  2. The second factor is that the Delta that spread between your fixed rate option and variable or rate option was about 1%.
  3. And the third thing was this rhetoric around expectations of interest rates. And now the infamous words of the governor of the bank of Canada at that time, suggesting that rates would stay low indefinitely and encouraging borrowers to go forward with confidence and make purchases that of course didn’t age well.


What we now know, three years later, is that choosing a variable rate mortgage wasn’t necessarily the best choice at the time. It’s no wonder that over the last three years, variable rate mortgages have fallen completely out of favor. But that’s starting to change.

TD Bank’s Special Offer

The TD bank has recently come to market with a, what they call a off-market or unpublished special secret special of prime. Minus 1.01%. That’s an effective rate of 6.19%.  And that’s kind of reengaged this age, old discussion for mortgages fixed or variable. And so in this video, I want to explore with you the case for choosing the variable rate mortgage as of may 2024, why it might make sense? And also discuss why it might not be the right choice for everyone.

Case for Variable Rate Mortgages

First let’s discuss why it might make sense to consider a variable rate mortgage at this time. Now. Let me be very clear if we’re looking strictly at interest rates, looking for the lowest interest rate fixed far out, performs variable at this time, because the difference between a fixed rate and variable rate  mortgage at this time, which is may of 2024 is about 0.75%. The variable rate mortgage is currently at 6.19%, and you can get a fixed rate mortgage at about 5.50% or lower. In fact, depending on the terms. So, if you’re looking at this strictly from a lowest rate today perspective, it’s obvious fixed is the way to go, but there’s more to the variable that you should understand.

Convertibility Clause Benefits

Variable rate mortgages, have a clause built into them. Called the convertibility clause. And this clause allows a borrower to switch or convert their mortgage from variable to fixed at any time, no fees, no costs. And that is the critical piece because we do expect mortgage interest rates to drop throughout the remainder of 2024. If you opt for a fixed rate mortgage today, then in 3, 6, 9 or 12 months, you’ll have FOMO because mortgage interest rates will be lower. And this convertibility clause in a variable rate mortgage allows you to hold on to that decision, to convert, to fix for a future. Time, and that is very powerful in a falling interest rate environment. So in a way, the premium that you’re paying by choosing a variable rate mortgage today affords you the ability to choose when to select a fixed rate mortgage in the future.

Considerations for Choosing Variable Rates

But choosing a variable rate mortgage is not for the faint of heart. Affordability is very tough right now. Especially if you are a first time home buyer or you are burdened with a very high mortgage amount and you’re struggling with payments. Choosing the variable may not be the right choice for you because we still don’t know at the time of this recording may of 2024, when the bank of Canada will start cutting its expected in June, July, but that’s not a guarantee. And we don’t know what magnitude or how many cuts are in store.

Short-Term Fixed Rate Options

Instead I would offer for the shortest term fixed rate mortgage that you feel comfortable qualifying for the sweet spot at the moment seems to be a three-year fixed, because the one and the two year fixed rates are very close to the variable rate mortgage rate at 6% or higher. So that doesn’t make a lot of sense for most borrowers. Now at this time, we don’t know when the bank of Canada is going to start cutting interest rates. Will it be summer 2024? Will they wait until September? Will there be cuts at all this year? The feeling is, is that we’re very close and cuts are imminent. And the moment the bank of Canada makes that first announcement that they’re cutting interest rates. The argument for a variable rate mortgage becomes stronger and stronger.


Before you make any decision consult with a mortgage professional, to make sure that you’re making the right choice for your circumstances. If you are currently shopping for a mortgage or would like to discuss, then I invite you to get in touch with me. I’m going to leave a link to my calendar. You can book a call directly with me and I’m happy to chat with you.


Christopher Molder

Mortgage Broker

Christopher is a mortgage broker based in Toronto, Canada. And a son of a broker too. He’s a second generation mortgage broker. Following in his father’s steps he joined the family mortgage business straight out of university.