HOW STATIC-PAYMENT VARIABLE MORTGAGES CAN SLASH YOUR AMORTIZATION IN A RATE-DROP CYCLE

Here’s a real-world case study that highlights the upside of a static-payment variable mortgage in a rate-decreasing environment.

Five months ago, I set up a client with a 30-year amortization and a variable-rate mortgage with a static (fixed) payment. This structure keeps your payment the same every time the Bank of Canada moves rates, up or down.

In today’s declining-rate environment, that fixed payment becomes more powerful. As rates drop, more of your payment goes toward principal, and less goes toward interest. The net effect? Faster amortization reduction without increasing your payment.

For this client, after the recent rate cuts, their amortization has already dropped from 30 years down to 26 years and 7 months. If rate cuts continue that amortization will keep dropping.

A static-payment variable option can be a strong fit for clients who want the flexibility of variable rates but prefer a predictable payment for budgeting.

Important context:
In a rising-rate environment (like we saw a couple of years ago), static-payment variables behave differently. If rates rise enough that your payment no longer covers the full interest portion, you hit what’s called the trigger point. When that happens, lenders will typically require you to increase your payment to cover the full interest amount.

Static-payment variables come with both upside and operational considerations. But in the current cycle, this structure is materially shortening amortizations, without any payment change.

Looking for the best mortgage for your situation? Reach out.