RBC Variable Mortgage Rates Guide

How Variable Rates Work

An RBC variable rate mortgage is a home loan where the interest rate can change over time, based on market conditions and the lender's prime rate. Instead of locking in a single rate for the entire term, the rate fluctuates with the prime rate, which is set by the Bank of Canada and used by financial institutions as a benchmark.

RBC quotes its variable rate as prime plus or minus a certain amount. Because the prime rate can change, your effective rate will adjust accordingly.

• Variable rate = prime rate + or - a set amount
• The fluctuation is directly tied to changes in the prime rate
• Even though the rate changes, the payment amount may stay fixed for the term (see next section)
• You have the option to convert to a fixed rate mortgage at any time

Sources: RBC Royal Bank, NerdWallet Canada

How RBC Prime Rate Changes Affect Payments

With an RBC variable rate mortgage, the payment amount typically stays fixed for the term even when interest rates fluctuate. If rates go down, a larger portion of each payment goes toward reducing the principal. If rates go up, more of the payment goes toward interest instead.

This payment stability can be helpful for budgeting because your monthly payment does not automatically change when the prime rate moves. However, it means that during periods of rising rates, the amount of interest you pay increases, and less of your payment reduces the loan balance. Conversely, when rates fall, you pay down the principal faster.

The exact payment allocation changes with the prime rate, but your actual payment amount may remain constant until the end of the term or until you renew or convert your mortgage.

• Payment amount fixed for the term
• Rate increases: more of the payment goes to interest; less to principal
• Rate decreases: more of the payment goes to principal; less to interest
• The payment allocation adjusts automatically as the prime rate changes

Sources: RBC Royal Bank

Convertible vs. Non-Convertible Variable Terms

RBC offers variable rate mortgages that are open or closed, and they may be convertible. A convertible mortgage allows you to switch to a fixed-rate mortgage at any time, based on the rates offered by RBC at the time of conversion.

RBC variable rate mortgages can be converted to a fixed rate mortgage at any time, subject to the lender's terms and conditions. It's important to check with RBC about any applicable fees or conditions that may apply at the time of conversion.

Non-convertible variable terms do not offer this option, so you would be required to wait until renewal or potentially pay a penalty to break the mortgage early.

• Convertible: switch to fixed at any time, subject to RBC's terms
• Check with RBC for any applicable fees or conditions for conversion
• Open vs. closed: open terms allow prepayment and may have higher rates
• Review your contract for specific conversion terms and conditions

Sources: RBC Royal Bank, WOWA.ca

Comparison: Variable vs. Fixed Rates

The main difference between variable and fixed rate mortgages is how the interest rate is set. Fixed rates stay the same for the entire term, giving you predictable payments and protection from rate increases. Variable rates fluctuate with the prime rate, offering the potential for savings when rates are low but exposing you to higher interest costs when rates rise.

Sources: RBC Royal Bank

Payment Stability vs. Rate Savings

Choosing between variable and fixed rates often comes down to whether you prioritize payment stability or potential rate savings. With a fixed rate, your payment is locked in, so you know exactly what you will pay for the term, regardless of what happens to the prime rate. With a variable rate, your payment amount stays the same, but the allocation between principal and interest shifts, so you may save on interest when rates are lower or pay more when rates rise.

To decide, consider your risk tolerance and financial situation. If you prefer certainty and dislike the idea of your mortgage costs fluctuating, a fixed rate may be more suitable. If you are comfortable with some uncertainty and want to benefit from lower rates when they are available, a variable rate could be worth considering.

Remember that rates and the prime rate are time-sensitive and can change. Always review your current personal circumstances and consult with a mortgage professional to determine what fits your needs best.

• Fixed: predictable payments, no exposure to prime rate changes during the term
• Variable: payment amount stays fixed, but interest cost fluctuates with prime
• Variable may save money when rates are stable or declining
• Fixed may cost more if rates fall, but protects if rates rise

Sources: RBC Royal Bank

Side-by-side Category

The table below compares the key attributes of variable and fixed rate mortgages in a closed term, providing a clear side-by-side view based on RBC's product information. Use this as a starting point to evaluate what matters most to you.

Sources: RBC Royal Bank