Wondering If You Can Change Your Mortgage Type?

Many homeowners choose either a fixed or variable rate when they first get their mortgage—but what if your needs or the market change partway through? Can you switch from a fixed rate to a variable one? Or go from a variable to fixed? <br>The short answer is yes, in many cases, but there are important factors to consider. Let’s break it down.

What’s the Difference Between Fixed and VariableRates?

Here’s a quickrefresher:

Fixed-rate mortgages lock in your interest rate and your payment for a setterm (usually 1–5 years).
Variable-rate mortgages are tied to your lender’s prime rate. Your payment orhow much goes toward interest may change if the Bank of Canada adjusts theovernight rate

One of the biggest differences betweenthese mortgage types shows up when you want to break your mortgage early—whichis exactly what happens if you want to switch types before your term is up.

Penalties: Fixed vs. Variable

If you want to switchmortgage types mid-term, you'll need to break your current mortgage—and that cancome with penalties.

For fixed-rate mortgages, the penalty is the greater of three months’ interest or the Interest RateDifferential (IRD). The IRD is a calculation based on how much rates havedropped since you signed. It can be very expensive, especially if you’re earlyin your term.
For variable-rate mortgages, the penalty is always three months’ simple interest, making it a much more predictable(and often cheaper) cost to break.

This difference is one reason somehomeowners prefer variable rates—not just for the lower starting interest, butfor the lower cost to exit if they need flexibility.

Switching from Fixed to Variable

It’s not very common forpeople to go from fixed to variable mid-term, mostly because of the potentialpenalties. That said, it can make sense in some scenarios:

You’re refinancinganyway to access equity, consolidate debt, or make home improvements
You want to roll thepenalty into your new mortgage
You believe variablerates will remain lower for the remainder of your term

Keep in mind that youwon’t get the variable rate you were originally offered. You'll be subject tocurrent rates in the market. Also, if you're staying with your current lender,they may offer a reduced penalty to keep your business—but that isn’t always thecase.

Switching from Variable to Fixed

This option is much morecommon—and usually easier to execute.
Most variable-ratemortgages in Canada allow you to lock into a fixed rate at any time during yourterm. Here’s what to know:

You can request to lockin with your current lender
There’s no penalty forswitching as long as you don’t change lenders
The fixed rate you’reoffered is based on current rates, not the fixed rate you were originallyoffered when you started
You’ll need to lock intoa fixed term that’s equal to or longer than the time remaining on your originalmortgage

Misconception About Locking In

A lot of homeownersbelieve that if they originally had the option to go fixed or variable, theycan still access that original fixed rate when locking in. That’s not true.You’ll be offered the lender’s current fixed rates at the time you decide tolock in, which may be higher or lower than before.
For example, if you tooka five-year variable rate mortgage two years ago, and now want to switch to afixed rate, you’ll need to lock into a three-year term or longer—at currentfixed rates.

When Does Locking In Make Sense?

Locking in makes themost sense when rates are rising. Many homeowners chose to convert from variableto fixed in 2022 and 2023 as rates increased sharply. On the other hand, intoday’s market environment, we’re seeing a different trend.
Right now, the Bank ofCanada is expected to continue lowering rates. Because of that, locking in at afixed rate today may not be the best strategy for everyone. Many homeowners arechoosing to wait for another rate cut—or two—before making any changes.

Fixed vs. Variable: Different Drivers

It’s also important tounderstand that fixed and variable mortgage rates are influenced by differenteconomic factors:

Rate Type	What It’s Based On
Variable Rate	Bank of Canada Overnight Rate → Prime Rate
Fixed Rate	Canadian Bond Yields

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Just because the Bank ofCanada lowers its overnight rate (affecting variable rates), doesn’t mean fixedrates will drop. Fixed rates depend more on bond market activity, which is tiedto broader economic trends—including inflation, housing demand, and even U.S.political developments.
This can lead toconfusion when fixed rates stay high while variable rates fall—or vice versa.That’s why you’re often offered both options when you get a mortgage, and whybrokers may recommend shorter fixed terms (like 2 or 3 years) during volatilemarkets, so you can reassess your options sooner.

What Happens at Renewal?

If you’re nearing theend of your mortgage term, this is the easiest time to switch from fixed tovariable—or vice versa—without penalty. At renewal, you can renegotiate yourterms, switch lenders, or explore better options that fit today’s marketconditions and your financial goals.

Let’s Review Your Mortgage Strategy

If you’re thinking aboutswitching your mortgage type, refinancing, or approaching renewal, let’s talkthrough your options. Every situation is unique—and your mortgage should matchyour plans, not the other way around.
Call 647-980-5399
Email: alex@ontariomortgageexpert.ca
Let’s find the optionthat makes the most sense for you.