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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Reverse Mortgage follow up

By Tracy Head • February 23, 2026
Not long after my last column about reverse mortgages went live I received a thoughtfully written email from a reader challenging several of the points I made in my article.  He raised concerns about the cons around reverse mortgages and said he felt that I wasn’t diving into the potential negative impacts of reverse mortgage products. Most of the concerns boiled down to the erosion of equity in seniors’ most significant asset due to the compounding of interest over time. He felt that I didn’t show any calculations so people would not see the long-term cost of a reverse mortgage. When I work with my reverse mortgage clients I show them projections that include the interest cost. What people may not consider is the appreciation in value of homes over time. Reverse mortgage lenders don’t automatically go to the maximum allowable amount for every client (ie: “up to 55% of the value of the home”). Mortgage size is determined by the age of the client and the type and location of the home that they are in so as not to erode all of the equity in the home. Mortgages are done on a sliding scale so the younger they are the less equity clients have access to. The other piece to understand is that not every client pulls the entire amount they are approved for upfront. I encourage my clients to only pull what they require at the time and to have the rest available for if and when they need it. Initially I was not a huge fan of reverse mortgages for a lot of the reasons that he shared. However, I have many clients who are house rich with very limited income. People living on CPP and OAS can’t afford the basic necessities never mind any frills. Which leads to another reason I see the value in reverse mortgages. Many of the clients I work with have overextended themselves using credit cards or personal lines of credit and are in the position that they are making the minimum payment on their credit facilities by applying for more credit cards or loans, which leads to a spiral of increasing balances month over month with no way to repay these debts. Downsizing doesn’t always work because moving to a smaller home often means now they have a strata payment. Even if they downsize and have cash in the bank to cover living expenses, the end result is that they are still eroding that equity and now are not in the home they spent their lives in. I’ve seen reverse mortgages impact seniors in positive ways that you can’t even imagine. I’ve had clients supporting their middle-aged children while not having money to buy groceries. I’ve worked with clients who have needed to renovate their homes for accessibility issues due to health concerns as they age. I’ve seen clients leverage the equity in their homes to buy vacation homes. There are many types of clients who use reverse mortgages to achieve their financial goals. I do find that some of the loudest objections come from the families of clients. In these situations I first ask my clients if their families know the true extent of their financial distress. Next I ask if they would like to include trusted family members in the conversation so that we can address any concerns so that everyone is on the same page. Not all reverse mortgage clients are naïve. Many have already done their homework before they call.

Reverse Mortgages

By Tracy Head • February 6, 2026
Reverse Mortgages: A Tool More Canadians Should Understand After years in the mortgage business, I’ve learned that few financial tools are as misunderstood as the reverse mortgage. I’ll admit it upfront: for a long time, even mentioning the words made people tense up. I’d see shoulders tighten, brows furrow, and someone would inevitably say, “Isn’t that how you lose your house?” Let’s clear the air. A reverse mortgage is simply a way for Canadian homeowners aged 55 and over to access some of the equity they’ve built up in their home—without having to sell it or make monthly mortgage payments. For many retirees, that alone is a game changer. Many Canadians I work with are “house rich and cash poor.” They may own a home worth a significant amount, but their retirement income hasn’t kept pace with the rising cost of groceries, utilities, property taxes, or helping adult kids and grandkids. A reverse mortgage can help bridge that gap by turning part of that home equity into tax-free cash. That money can be taken as a lump sum, regular payments, or a combination of both. Some homeowners use it to top up their retirement income. Others use it to pay off an existing mortgage or line of credit, eliminate monthly debt payments, or fund renovations that let them age comfortably in place. I’ve even seen clients use it to cover medical expenses or make their home safer with mobility upgrades. One of the biggest benefits—and one that surprises people—is that you don’t have to make monthly payments. Interest is added to the balance, and the loan is typically repaid when the home is sold or the owner moves out permanently. As long as you keep the home maintained, insured, and pay your property taxes, you remain the owner of your home. Another common concern is inheritance. It’s a fair question. What happens to the house? The reality is this: when the home is eventually sold, the reverse mortgage is paid off, and any remaining equity goes to the homeowner or their estate. These products in Canada are regulated and include safeguards so you’ll never owe more than the fair market value of your home. Are reverse mortgages right for everyone? Absolutely not. They tend to work best for homeowners who plan to stay in their home long term and need access to equity but don’t want the pressure of monthly payments. They’re also something that should be discussed openly with family and reviewed with a qualified professional who understands the fine print. What I always encourage is education—not fear. Too many homeowners dismiss reverse mortgages based on outdated information or horror stories that don’t reflect today’s Canadian market. Like any financial tool, they have pros and cons, but when used appropriately, they can provide flexibility, dignity, and peace of mind in retirement. At the end of the day, retirement isn’t just about numbers on a page. It’s about choices. Staying in the home you love. Reducing financial stress. Enjoying the life you worked so hard to build. For many Canadian homeowners, a reverse mortgage can be one of the tools that helps make that possible. And that’s worth a second look.