Fixed or variable mortgages in a time of interest hikes

Tracy Head • October 24, 2022

Last weekend I attended the mortgage professionals conference in Vancouver. My goal was to take in as many professional development sessions as possible because I’m finding we are moving forward in a very strange interest rate environment.

Ironically, and I never thought I’d ever say this, the session I got the most from (and arguably enjoyed the most) was the presentation by Benjamin Tal. Tal is the managing director and deputy chief economist at CIBC Capital Markets Inc.


He spoke about his thoughts on our current rate environment, the forces driving the Bank of Canada’s economic policies, and where he felt rates will go.


He also spoke about the unprecedented rate hikes we’ve seen this year. The Bank of Canada is trying desperately to curb inflation and he thought the bank has gone too far and has overreached with the rate hikes this year.


I am a fan of variable rate mortgages. One of the key factors that influences this is the cost of breaking your mortgage early. If you need to pay your mortgage in full and it doesn’t make sense (or doesn’t work) to port your current mortgage, the maximum penalty you will be charged is three months’ interest.


With a fixed mortgage, the penalty to break your mortgage is normally the greater of either the interest rate differential (IRD) or three months’ interest. Investopedia.ca shows how an IRD penalty is calculated:


“An IRD weighs the contrast in interest rates between two similar interest-bearing assets. Most often it is the difference between two interest rates.”


This type of penalty can be substantial. I’m currently working with a client who is selling a luxury property whose current mortgage is up for renewal. It is a sizeable mortgage and he is understandably concerned about the volatility of mortgage interest rates right now.


I did the math for him. Had he locked into a five-year fixed-rate mortgage, based on where rates are now and the balance of his mortgage, his penalty was in the range of $32,000. The variable rate penalty, again based on today’s balance and rate, would be around $6,000. So for this particular client who is absolutely going to be selling his home in the next year the potential increase in payment due to rising rates was a far more palatable option than a penalty in the $32,000 range.


All this aside, for many Canadians in variable mortgages the incredible rate hikes we’ve seen this year make a massive dent in their monthly budget. It’s really tempting to think about locking into a fixed rate product for the stability of the payment.


One consideration is how you will feel if you lock into a rate in the mid to high five per cent range when rates start to move down again. Will you sleep better at night knowing you have the security of a fixed payment? Are you losing sleep thinking about where rates are going?


I recommend you think about why you chose variable in the first place. You likely enjoyed really low rates for the first part of your term and will very likely enjoy lower rates towards the end of your term as rates start to trend down again.


I guess I should have started with that. Tal’s take is that we are in for another significant rate hike very soon but he feels rates will stabilize next year and start trending down again towards the end of next year or early 2024.


One option is splitting the difference. There are lenders who offer true variable mortgages with a static payment. This means that regardless of where rates move your payment stays the same. I should say, it stays the same until the increase in rate means you aren’t paying enough to cover the interest due which in turn will affect your amortization.


You would have to pay a three-month interest penalty to break your current mortgage to switch to a lender that offers a static payment. Most lenders will allow you to capitalize up to $3,000 of your penalty into your new mortgage (more if you do a refinance instead of a straight switch, providing you have enough equity for this to work).


Going this route you will still enjoy the benefit of a variable rate mortgage once rates start moving down again, without worrying about potential penalties if you have to pay out your mortgage unexpectedly.


If you’d like to chat about this, and see if it’s a fit for you, I am happy to do a mortgage check-up and offer some insight.

Tracy Head

Mortgage Broker

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By Tracy Head • October 15, 2026
When you’re buying a home or renewing your mortgage, choosing a lender is one of the biggest financial decisions you’ll make. Many Canadians start with their bank because it’s familiar. They may have their chequing account, savings, and credit cards all in one place. It seems like the natural place to get a mortgage, too. After years of helping clients find the right mortgage, I’ve learned that the best choice isn’t always the biggest bank. That’s why I often work with monoline lenders to help my clients find a mortgage that fits their needs. What Is a Monoline Lender? A monoline lender is a company that focuses mainly on mortgages. Unlike traditional banks, monoline lenders don’t offer everyday banking services such as chequing accounts, credit cards, or car loans. Instead, they focus on one main job: providing home financing. Many monoline lenders work through mortgage brokers rather than dealing directly with customers. This means I can compare their mortgage options with those of banks and other lenders to help find a suitable fit for each client. You may not recognize the name of a monoline lender, but that doesn’t mean it’s a small or risky operation. Many are well-established companies that serve homeowners across Canada. One of the biggest reasons I work with monoline lenders is their focus on mortgages. Because mortgages are their main business, they often offer competitive interest rates and mortgage features that can be very attractive to borrowers. Even a small difference in your interest rate can make a difference over time. But I always remind my clients that the lowest rate isn’t the only thing that matters. The mortgage also needs to work with their budget, plans, and comfort level. Here are some of the advantages I see when working with monoline lenders: 1. Competitive interest rates Monoline lenders often offer very competitive rates, sometimes lower than those offered by the big banks. This can help reduce borrowing costs over the life of a mortgage. 2. Mortgage terms that put borrowers first Some monoline lenders offer flexible mortgage features, including helpful options for making extra payments or paying off a mortgage early. Their prepayment rules and penalties can also be more favourable than those of some bank mortgages. However, every lender and mortgage product is different, so I always look at the details before making a recommendation. 3. A focus on mortgage service Since monoline lenders specialize in mortgages, their processes and support teams are built around home financing. As a mortgage broker, I work with their lending teams to help move applications forward and deal with questions along the way. 4. More choice for my clients I believe my job is to look beyond the name on the building. By working with different types of lenders, I can compare more options instead of limiting my clients to what one bank offers. That extra choice can be especially helpful for first-time buyers, families renewing their mortgages, and homeowners who want to make the most of their money. Of course, no lender is perfect, and monoline lenders are no exception. One difference is that you generally won’t have a branch to visit for your mortgage. You may need to contact the lender by phone, online, or through your mortgage broker. For people who prefer face-to-face service at their local bank, this can take some getting used to. You also won’t be able to keep your everyday banking and mortgage with the same monoline company. Some people prefer having everything in one place, and that convenience has value. Another important point is that mortgage features can vary widely. Some monoline mortgages have excellent prepayment options, while others may have limits or conditions. Penalties for breaking a mortgage early can also vary, especially with fixed-rate mortgages. That’s why I encourage clients to read the terms carefully and ask questions before signing. A low rate is only a good deal if the mortgage suits your needs. How Do Monoline Lenders Compare With Traditional Banks? Traditional banks have plenty to offer. They provide familiar service, a wide range of financial products, and the convenience of managing several accounts under one roof. Some also offer discounts or benefits when you combine your mortgage with other products. Monoline lenders, on the other hand, focus on mortgages and may offer better rates or more suitable mortgage terms for certain borrowers. Neither option is automatically better. The right choice depends on your financial situation, your plans, and the mortgage details. This is where working with a mortgage broker can make a real difference. We can compare options from different lenders, explain the differences in plain language, and help you understand what you’re agreeing to. My Advice: Look Beyond the Name After years in the mortgage business, I believe that choosing a mortgage should be about more than finding the lowest rate or going with a familiar name. It should be about finding a mortgage that gives you good value, fits your budget, and offers the flexibility you may need in the future. That’s why I often recommend monoline lenders. They give me more options to consider and can provide excellent mortgage solutions for many Canadian homeowners. Most importantly, I want my clients to feel informed and comfortable with their decision. A mortgage is a major commitment, and you deserve to understand your choices before making it. Whether your mortgage is with a major bank, a credit union, or a monoline lender, the goal remains the same: to help you find the right fit for your life, not simply the first option put in front of you. The best mortgage isn’t always the one with the most familiar name. It’s the one that works best for you.
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By Tracy Head • October 1, 2026
If there’s one mortgage question I’ve heard more times than almost any other, it’s this: “Should I take the variable rate or lock in the fixed?” And honestly, there isn’t a one-size-fits-all answer. Right now it’s a particularly interesting question. For example, a client today might be looking at a variable mortgage around 3.50%, while the comparable fixed-rate option for the same term is approximately 4.45%. That’s a difference of almost a full percentage point. On a $500,000 mortgage, that difference is significant. So why wouldn’t everyone simply take the variable? Because the mortgage decision isn’t really about choosing between two numbers. It’s about deciding how much interest-rate risk you’re comfortable carrying. The case for variable The biggest attraction of a variable mortgage is obvious: you’re starting with the lower rate. At 3.50% versus 4.45%, the variable borrower has a meaningful head start. And unlike a fixed mortgage, where you’re locked into the rate for the term, a variable mortgage moves with the lender’s prime rate. The Bank of Canada influences short-term rates through its policy rate, which in turn affects prime and therefore variable mortgage rates. That creates both an opportunity and a risk. If rates fall, a variable-rate borrower generally benefits relatively quickly. More of the mortgage payment can go toward principal, and the overall interest cost can decline. That’s one reason variable mortgages have historically attracted borrowers who are comfortable with some uncertainty. There’s another advantage that I think is sometimes overlooked: flexibility. Many variable mortgages can be converted into a fixed-rate mortgage during the term. But—and this is important—the exact rules depend on the lender and the mortgage product. For example, some lenders allow a borrower to convert to a fixed rate without a traditional break penalty, provided certain conditions are met. Many lenders say their variable mortgages can generally be converted to a fixed mortgage with a term equal to or longer than the remaining variable term. Other lenders have their own rules. So when I’m arranging a variable mortgage for a client, I don't just ask, “What's the variable rate?” I ask: “What are the conversion rules?” Because a variable mortgage with a good conversion option can be a very different product from one without it. But here's the catch with converting I often hear clients say: “I'll just take the variable now and lock into a fixed rate if rates start going up.” It sounds like the perfect strategy. Unfortunately, mortgage markets don't always make it that easy. The problem is that by the time everyone agrees that rates are going higher, fixed rates may already have moved. That's because variable and fixed mortgages are influenced by different benchmarks. Variable rates are primarily connected to prime and the Bank of Canada’s policy rate. Fixed mortgage rates, meanwhile, are heavily influenced by Government of Canada bond yields and market expectations about future inflation and interest rates. That means fixed rates can move before the Bank of Canada actually changes its overnight rate. So if you wait for the first Bank of Canada rate hike before deciding to convert, you may find that the fixed rate you wanted has already become more expensive. And there’s another consideration: when you convert, you don't necessarily get the same discounted fixed rate that a new mortgage client might be offered. The conversion rate is determined by the lender and the terms of your mortgage. In other words, the ability to convert is valuable, but it isn't a crystal ball. What does history tell us? This is where the conversation gets interesting. Over long periods of Canadian mortgage history, variable rates have frequently been below comparable fixed rates. The Bank of Canada's own research shows just how attractive variable mortgages became in the years leading up to 2022. In 2021 and early 2022, for example, variable mortgage rates were substantially below fixed rates, and variable mortgages represented roughly one-third of outstanding mortgage debt. But then came 2022. The Bank of Canada increased its policy rate rapidly in response to inflation. Variable mortgage rates followed. Suddenly, the borrower who had enjoyed a significant discount over a fixed mortgage was facing much higher payments. That experience is worth remembering because it illustrates the fundamental truth about variable mortgages: The historical advantage of variable isn't a guarantee. There have been periods when variable rates have outperformed fixed rates, and there have been periods when fixed rates have been the better choice. In fact, the recent history gives us a pretty good example of both sides. In 2021, a variable mortgage could be dramatically cheaper than a fixed mortgage. By late 2022 and into 2023, rapidly rising rates turned that relationship upside down. CMHC's historical data shows variable mortgage rates climbing sharply as the Bank of Canada increased its policy rate. Canada Mortgage and Housing Corporation More recently, the relationship has shifted back again. CMHC reports that variable mortgage rates at Canadian chartered banks fell below fixed mortgage rates beginning in the fourth quarter of 2025, marking the first time that had happened since 2022. By February 2026, variable mortgages had become the most common type of newly extended mortgage at chartered banks. That's an important piece of context for today's borrower. So does variable normally win? If you look at the broad historical picture, variable rates have often been lower than fixed rates over extended periods. But I would be very careful about turning that historical observation into a prediction. The reason is simple: we're not borrowing money in the past. We're borrowing it today. And today's starting point matters enormously. If I'm looking at a client with a 3.50% variable option and a 4.45% fixed option, the variable borrower has a 0.95 percentage-point advantage right from the start. The question becomes: How much can rates rise, and for how long, before that initial advantage disappears? That's the calculation I want clients to think about. If the variable rate remains around 3.50% for a while, the borrower has a considerable advantage. If it rises to 4.00%, perhaps the advantage is still there. If it rises to 4.50%, we've essentially eliminated the initial discount compared with today's 4.45% fixed rate. And if it rises substantially above that level and stays there, the fixed-rate borrower may ultimately come out ahead. Of course, that's a simplified illustration. Mortgage payments, amortization, timing and the path of rate changes all matter. But it demonstrates the basic concept. The variable borrower is effectively being paid to accept interest-rate risk. Right now, that payment is the roughly 0.95% discount. The question is whether that discount is enough compensation for the risk you're taking. The biggest mistake isn't choosing fixed. And it isn't choosing variable. It's choosing one without understanding your own tolerance for changing payments. I've had clients who could comfortably handle a payment increasing by several hundred dollars a month. For them, variable can be a reasonable way to pursue a lower starting rate and maintain some flexibility. I've also had clients for whom a $300 or $500 increase in their mortgage payment would create a serious problem. For those borrowers, the value of certainty can be much greater than the potential savings of starting with a lower variable rate. There's nothing wrong with paying a little more for certainty. Think about car insurance. You don't buy insurance because you expect to crash. You buy it because you don't want one bad event to create a financial disaster. A fixed mortgage provides a similar form of certainty. You're effectively saying, “I don't want to worry about where rates are going for the next several years.” That's worth something. There's also a psychological component This doesn't get talked about enough. A variable mortgage can look fantastic when rates are falling. It can look terrible when rates are rising. And human beings aren't particularly good at watching their biggest monthly expense change and then calmly sticking with a long-term strategy. We tend to do the opposite. When rates are low, people want to stay variable. When rates start rising, suddenly everyone wants fixed. And by then, the fixed rate may already have increased. I've seen this cycle repeat. That's why I don't believe the best mortgage strategy is necessarily the one that produces the lowest theoretical interest cost. The best strategy is one that the borrower can actually live with. What I tell my clients When the variable rate is around 3.50% and the comparable fixed rate is around 4.45%, I think it's reasonable to have a serious conversation about variable. That's a meaningful spread—not a tiny difference. But I also want the client to understand exactly what they're buying. They're buying a lower starting rate in exchange for accepting uncertainty. They're accepting that their rate can move. They're accepting that the Bank of Canada can move in a direction they don't like. And they're accepting that converting to fixed later isn't necessarily going to give them the same fixed rate that was available today. On the other hand, the fixed borrower is buying certainty. They know what their rate will be. They know what their mortgage payment will be, subject to the mortgage's specific terms. And they don't have to spend the next few years watching the Bank of Canada. So which one should you choose? After years in the mortgage business, I've learned that this is rarely a question of simply finding the mathematically “right” answer. It's about matching the mortgage to the borrower. If you have strong cash flow, plenty of financial flexibility, and can comfortably absorb higher payments if rates rise, a variable mortgage can be an attractive option—particularly when there's a substantial discount to the comparable fixed rate. If your budget is tight, you value certainty, or the prospect of a significant payment increase would cause financial stress, paying more for a fixed rate may provide valuable protection. And if you're considering variable, don't just ask your broker about the rate. Ask about the conversion rules, prepayment privileges, trigger rate, payment structure and exactly what happens if you decide to lock into a fixed mortgage later. Those details matter. Ultimately, the variable-versus-fixed debate isn't about predicting the Bank of Canada correctly. None of us has that ability. It's about deciding how much interest-rate risk you want to take, what you're being compensated for taking that risk, and whether you can comfortably live with the outcome if rates don't go the way you hope. That's a much more useful way to look at the decision. And in today's market, with roughly a 3.50% variable rate versus a 4.45% fixed rate, it's certainly a conversation worth having.  The historical and current-rate references above are based on Bank of Canada and CMHC data; lender conversion provisions vary by mortgage contract, so the column deliberately avoids presenting conversion as universally identical across lenders.