Thinking of Switching Your Variable Mortgage to Fixed? Do the Math First.

A lower advertised mortgage rate doesn't always mean a better deal. Here's what Canadian homeowners should know before locking in.

Every time the Bank of Canada makes an interest rate announcement, social media fills with predictions, warnings, and advice about what homeowners should do next.

If rates increase, some people immediately recommend locking into a fixed mortgage. If rates remain unchanged, others suggest waiting for the next announcement.

But here's something I think deserves more attention.

I've worked in the mortgage industry since 2011, including reviewing mortgage applications and working in underwriting, compliance, and management.

One thing I've learned is that the interest rate alone doesn't tell the whole story.

Before making changes to your mortgage, it's worth sitting down and looking at the actual numbers.

1. What Happens When You Convert Your Variable Mortgage to Fixed?

Many Canadian lenders allow homeowners to convert their existing variable-rate mortgage into a fixed-rate mortgage before the end of their term.

That sounds straightforward. You're concerned about future rate increases, so you lock into a fixed rate for greater payment certainty.

But here's something many homeowners don't realize.

Lenders can have different pricing for new purchases, mortgage transfers, and existing customers converting their mortgages.

Your lender may use a standard conversion rate and require a fixed term equal to or longer than the time remaining on your variable mortgage.

Some lenders permit qualifying conversions without a prepayment penalty, but the conditions vary.

2. Let's Compare the Actual Numbers

Let's use an example of a homeowner with an existing competitive variable mortgage.

Mortgage details:

• Outstanding mortgage: $500,000
• Remaining amortization: 25 years
• Lender prime rate: 4.45%
• Existing discount: Prime minus 1%
• Effective variable rate: 3.45%

Now compare that mortgage against publicly advertised special-offer fixed rates from one of Canada's major banks.

Potential monthly payment difference:

• 2-year fixed: Approximately $465 more per month.
• 3-year fixed: Approximately $422 more per month.

These are illustrative comparisons using advertised rates, not guaranteed conversion offers.

Actual rates depend on lender eligibility, mortgage terms, and qualification. An existing borrower may not qualify for these special offers when converting mid-term.

This is a comparison of current monthly payments, not a prediction of which mortgage will ultimately cost less over the entire term.

3. What if the Bank of Canada Raises Rates by 0.25%?

Using the same $500,000 mortgage example, assume the Bank of Canada increases its policy rate by 0.25% and the lender passes the full increase to prime.

The variable mortgage rate would move from 3.45% to 3.70%.

For an adjustable-payment variable mortgage with 25 years remaining:

That's approximately $2.20 per day.

Nobody wants to pay more interest. But understanding the actual financial impact is important.

Even after the increase, the mortgage payment would still be approximately $356 to $399 less per month than the fixed-rate examples above.

Fixed mortgages provide interest-rate certainty. Variable mortgages remain exposed to changes in interest rates.

The purpose of this comparison is to demonstrate why one rate announcement should not automatically determine your mortgage strategy.

Some variable-rate mortgages have adjustable payments, while others have fixed payments with changing principal and interest allocations.

4. Thinking of Switching Lenders for a Better Rate?

If your current lender offers an unattractive conversion rate, you may consider switching to another lender offering a better discounted rate.

But there's an important cost to consider.

For many closed variable mortgages, this is commonly calculated using approximately three months' interest, although the actual calculation depends on the contract.

Example:

• Mortgage balance: $500,000
• Interest rate: 3.45%

Simplified penalty calculation:

$500,000 x 3.45% x 3 / 12 = $4,312.50

This example does not include additional applicable discharge, legal, appraisal, or switching expenses.

Some lenders may cover certain costs or offer switching incentives, but those incentives should be evaluated alongside the complete transaction costs.

5. A Lower Mortgage Rate Doesn't Always Mean You're Saving Money

Let's compare another example.

Suppose your current mortgage rate is 5.00%, and another lender offers 4.50%.

On a $500,000 mortgage with 25 years remaining:

That could reduce monthly payments by approximately $141.

But suppose the cost to break your existing mortgage is $4,500.

At $141 per month, a simple payment-difference calculation suggests it would take almost 32 months to recover that upfront cost.

This is a simplified cash-flow comparison, not a complete mortgage savings calculation.

A proper comparison also considers:

• Total interest over the relevant period
• Remaining principal balance
• Changes to amortization
• Mortgage penalties and switching expenses
• How long the homeowner intends to keep the mortgage

6. Sometimes Keeping Your Existing Mortgage Makes Sense

Not every Bank of Canada announcement requires homeowners to take action.

If you already have a competitive variable rate, sufficient room in your budget, and a mortgage that suits your financial goals, keeping it may be reasonable.

On the other hand, locking into fixed may still make sense if payment predictability is important or if fluctuating payments are creating financial pressure.

The lowest payment isn't always everyone's biggest priority.

Some homeowners value certainty. Others prioritize flexibility and monthly cash flow.

7. Six Questions to Ask Before Switching Your Mortgage

1. 1.What rate am I actually paying today? Review your current interest rate, outstanding balance, remaining amortization, and term.
2. 2.What conversion rate is my current lender offering? Don't assume advertised promotional rates apply to an existing mortgage conversion.
3. 3.What fixed term would I have to accept? Make sure the new term fits your financial plans.
4. 4.What would it cost to switch lenders? Consider prepayment penalties, discharge fees, legal fees, and other applicable costs.
5. 5.What happens if interest rates increase, decrease, or stay unchanged? Compare different scenarios before deciding.
6. 6.How long do I expect to keep this mortgage? Selling, refinancing, or making other financial changes could affect whether switching is worthwhile.

My Takeaway: Don't Let Headlines Make Your Mortgage Decisions

After more than 15 years working in the mortgage industry, one thing I've learned is that good mortgage decisions aren't made by reacting to headlines.

They're made by understanding the numbers.

Whether the Bank of Canada raises rates, lowers them, or keeps them unchanged, don't let alarming headlines or fear-driven social media posts dictate your next move.

Instead, sit down and review your actual mortgage.

Look at what you're paying today, what your lender is offering, what other lenders might offer, and how much it would really cost to make a change.

And sometimes switching really does make sense.

The important thing is knowing the difference.

Review Your Mortgage Before You Switch

Before making a change, let's review your current mortgage, available options, potential penalties, and overall costs. The goal is to understand what actually makes financial sense for your situation.

If you're approaching renewal, it's worth comparing your options before signing another mortgage agreement. You can also explore our mortgage calculators to run your own numbers.

Review your mortgage renewal options

Explore our mortgage calculators

Sources and Disclosure

Mortgage rates and payment figures are illustrative and not guaranteed offers. Advertised special-offer rates were reviewed October 28, 2026, and may change without notice. Actual rates, qualification, penalties, and lender conversion policies depend on the mortgage agreement and lender. Variable rates and payments may change. Examples are educational and do not constitute individualized mortgage advice.

Bank of Canada

Financial Consumer Agency of Canada: Breaking your mortgage contract