Floating Rate Mortgage (Hypothèque à taux variable)

A variable rate mortgage or floating rate mortgage is a mortgage loan where the interest rate varies to reflect market conditions. The interest rate will normally vary with changes to the base rate of the central bank and reflects changing costs on the credit markets. This method of variation directly linked to underlying costs benefits lenders and ensures a profit by passing the interest rate risk to the borrower. The borrower benefits from reduced margins to the underlying cost of borrowing compared to fixed or capped rate mortgages. The lender must hedge against potential interest rate changes; the borrower benefits if the interest rate falls and loses out if interest rates rise.