Changing Your Mortgage Type: What Homeowners Need to Know

One of the biggest decisions homeowners face when getting a mortgage is whether to choose a fixed or variable rate. While this decision often comes down to your goals and market conditions at the time, it's not uncommon to second-guess that choice later—especially as rates change.

So, can you switch from fixed to variable or from variable to fixed after you’ve signed your mortgage? Yes—but there are key conditions and costs to understand before making a move.

Fixed vs. Variable: A Quick Overview

• Fixed-rate mortgages lock in your rate and monthly payments for a set term.

• Variable-rate mortgages are tied to your lender’s prime rate, meaning your interest rate may change as the Bank of Canada adjusts its overnight rate.

Each option offers different advantages, but the path to switching mid-term isn’t always straightforward.

Penalties Work Differently for Fixed and Variable Mortgages

If you're still within your mortgage term and want to switch types, you'll likely have to break your current mortgage, which comes with a penalty.

• Fixed-rate penalties are calculated as the greater of three months’ interest or the Interest Rate Differential (IRD). The IRD considers how much interest rates have dropped since you signed. It can be significant—sometimes thousands of dollars.

• Variable-rate penalties are more predictable and lower, based on just three months’ simple interest.

This is one reason some homeowners choose variable: the penalty to exit early is easier to manage.

Switching from Fixed to Variable Mid-Term

Switching from fixed to variable is less common, mostly due to the higher penalties involved. However, it can make sense under the right conditions:

• You’re refinancing your mortgage anyway—perhaps for debt consolidation, renovations, or accessing equity

• You're willing to roll the penalty into your new mortgage

• You believe variable rates will be more favourable going forward

It’s important to note that when switching to variable, you won’t get the rate that was offered at the beginning of your term. Instead, your lender will offer today’s variable rate, which could be higher or lower than your original fixed rate.

Sometimes lenders will reduce the penalty if you're staying with them through the switch—but that depends on the lender and isn’t guaranteed.

Switching from Variable to Fixed Is More Common

Switching from variable to fixed is a much more common strategy, especially when rates are on the rise. Many variable-rate mortgage holders have the option to lock in a fixed rate at any time during their term.

Here’s how it works:

• You contact your lender and request to lock in

• There’s no penalty to convert, as long as you remain with the same lender

• You must choose a fixed term that is equal to or longer than the time left on your current term

• The rate offered is based on current fixed rates, not the rate you were offered when your mortgage began

Common Misconception

Many homeowners believe that if they were offered a 2.79% fixed rate when they signed their variable mortgage three years ago, they can lock in at that same rate today. That’s not the case. Your lender will provide you with the fixed rates available now, which may be higher or lower than before.

Should You Lock In?

Locking in from variable to fixed made a lot of sense in 2022 and 2023, when interest rates were climbing rapidly. Many borrowers chose to lock in for payment security and peace of mind.

Today, in 2025, the rate environment looks different. Variable rates are slowly declining, and the Bank of Canada is expected to cut again in the coming months. As a result:

• Locking in now could result in a higher long-term payment

• Some homeowners are waiting for another rate cut before locking in

• Others are riding out the variable rate for now, especially if their payment terms offer flexibility

Fixed and Variable Rates Are Driven by Different Factors

Another important point: fixed and variable rates are not tied to the same indicators.

So when the Bank of Canada announces a rate cut, that typically affects variable rates—but not necessarily fixed rates. Fixed rates are driven by the bond market, which is influenced by factors like investor confidence, inflation expectations, and even U.S. political and economic news.

This disconnect can create confusion, especially when homeowners see variable rates falling while fixed rates stay flat or increase.

What About Renewal?

If you’re approaching your mortgage renewal, this is the ideal time to reconsider your rate type. At the end of your term, you can switch from fixed to variable—or variable to fixed—without paying penalties. This is also the time when you're free to shop around or negotiate better terms.

Depending on your risk tolerance and current market forecasts, your broker may recommend a short-term fixed rate, such as a 2- or 3-year option, to give you flexibility while waiting for more favourable long-term rates.

Considering a Switch? Let's Talk

Every homeowner’s situation is different, and mortgage decisions shouldn't be made in a vacuum. Whether you're planning a switch mid-term, refinancing, or approaching renewal, I can help you review the pros, cons, and numbers to make an informed choice.

Reach out any time to book a review and discuss your mortgage strategy.

Call 24-997-5021
Email mcabral@204mortgages.com

Let’s find the option that fits your goals today—and tomorrow.