For the last few years, most Canadian homeowners have been wary of adjustable-rate mortgages (ARMs), also known as variable-rate mortgages. With the Bank of Canada hiking interest rates to combat inflation, many borrowers opted for the stability of fixed-term loans instead. But as we step into 2025, market conditions are shifting. Interest rate forecasts, affordability pressures, and renewal challenges are all sparking renewed interest in ARMs.
So, are adjustable-rate mortgages really making a comeback in Canada? Let’s dive into the numbers, the risks, and the opportunities to see whether a variable option makes sense for today’s borrowers.
What are Adjustable-Rate Mortgages in Canada?
An adjustable-rate mortgage is a type of loan where your interest rate fluctuates based on the lender’s prime rate, which closely tracks the Bank of Canada’s policy rate. Unlike fixed mortgages, where your rate stays the same for the entire term, ARMs shift with economic conditions.
For many Canadians, this means:
- Lower initial rates compared to fixed mortgages.
- The chance to save money if rates drop.
- The risk of higher payments if rates climb again.
Why Adjustable-Rate Mortgages Are Back in the Spotlight
Potential Rate Cuts Ahead
The Bank of Canada has kept rates high since 2022, but economists are predicting gradual cuts through 2025 and beyond. If this plays out, borrowers in variable mortgages could see their payments shrink.
Affordability Pressures
With home prices still high and fixed mortgage rates squeezing budgets, some Canadians are turning to ARMs for lower starting payments. That breathing room can make homeownership or refinancing more manageable.
Renewals at Higher Rates
Hundreds of thousands of Canadians are renewing mortgages this year at significantly higher rates than they signed five years ago. Some are weighing ARMs as a way to benefit from possible future cuts rather than locking into today’s higher fixed rates.
The Risks of Choosing a Variable Mortgage
While ARMs can be appealing, they’re not for everyone. Here’s what to consider before leaping:
Payment Shock
If the Bank of Canada raises rates again, your monthly payments will climb.
Uncertainty
Fixed mortgages provide stability, while adjustable-rate mortgages require more tolerance for market swings.
Budget Flexibility
Borrowers with tight finances may struggle with sudden payment changes.
In short: ARMs reward flexibility and risk tolerance. Fixed rates reward predictability.
Current Mortgage Trends in Canada
According to industry data, fixed-rate mortgages still dominate the market, but variable options are slowly regaining popularity. In fact, some lenders are reporting an uptick in inquiries for adjustable rates as forecasts hint at easier monetary policy in 2025.
The gap between fixed and variable rates is narrowing, making ARMs a more realistic alternative for Canadians who want to keep their options open.
Who Should Consider Adjustable-Rate Mortgages?
ARMs may be a good fit if you:
- Expect rates to fall over the next few years.
- Have a stable income and can handle potential fluctuations.
- Want lower initial payments while planning for future refinancing.
They may not be ideal if you:
- Prefer certainty and peace of mind.
- Have little room in your budget for higher payments.
- They are highly risk-averse.
Are Adjustable-Rate Mortgages Really Making a Comeback?
The answer is yes, with caution. Adjustable-rate mortgages are gaining attention in Canada again, but they aren’t the right choice for everyone. The key is to understand your financial situation, evaluate your risk tolerance, and stay informed about rate forecasts.
At Cannect, we provide unbiased mortgage advice so you can compare adjustable and fixed options side by side. Whether you’re renewing, refinancing, or buying your first home, our team will help you choose the mortgage that fits your long-term goals.
Ready to explore your options?
Get a free consultation with Cannect today and find out whether an adjustable-rate mortgage is the right move for you.
Watch our Make Money Count videos to get more insights.
📞 Call us at 416.766.9000 or visit Cannect.ca to get started.