Should I Switch to a Fixed Rate Mortgage? A Practical Guide

Getting a mortgage can be one of the most significant financial decisions you will ever make. Landing on a decision you’re confident in can be tough, especially if you don’t have the vital information you need to make an informed decision. But with proper guidance, the process can be much simpler than it seems.

Even amid a pandemic, 2020 still saw record-high contributions to Canada’s mortgage market, with $305 billion added – further expanding its scope and size.

In this blog, we will delve deep into choosing between variable or fixed mortgage Canada 2022 and discover when switching between the two is a good decision.


Fixed Rate and Variable Rate Mortgage

Generally, fixed-rate mortgages have higher interest rates than variable-rate mortgages.

However, they are the preferable option in some cases.

These include:

  • Interest rates are notably low, and you want to secure your rate to prevent any potential future increases.
  • You’d instead prefer to budget for predictable and consistent payments, generally with the same principal-to-interest ratio, regardless of market fluctuations.

On the other hand, variable-rate mortgages fluctuate depending on your financial institution’s prime rate, which is mainly based on the Bank of Canada rate. Variable-rate mortgages are modified month to month in response to changes in the market.

This option might be right for you if:

  • From the moment you sign up, you want to take advantage of a low rate that may decrease further during the time you stay in your home.
  • Your monthly payment can be increased, or the principal repaid can be lowered in the event of rate hikes.


she is considering to switch to a fixed rate mortgage

Should I Consider Switching to a Fixed Rate Mortgage?

You might ask yourself, “Can I switch from variable to fixed mortgage?”

Here are five things to consider when switching from variable to a fixed rate mortgage.

1. Variable Rates are Still Very Competitive

If you opt for a five-year fixed-rate mortgage at 3.99% today, you could be paying close to double the cost of what your current variable interest rate is costing you.

Your local bank may promise you peace of mind with a fixed rate mortgage. However, a variable-rate customer will only see their rate rise slightly. Nonetheless, this is still reassuring when the Bank of Canada interest rates increase.

2. We’re Far from Pre-pandemic Lending Rates

In March 2020, the Bank of Canada’s benchmark interest rate was slashed three times due to the pandemic. On March 4th, 16th, and 27th, we consecutively saw a huge drop in lending rates, resulting in an unprecedented overall reduction of 1.5%.

As a result, this left us with one of history’s lowest benchmark interest rates – at only 0.25%. Despite a recent rise, the Bank’s benchmark rate remains 0.75% lower than pre-pandemic levels. This also translates to an overall decrease in prime lending rates since the onset of this global crisis.

3. Remember that You’ve Been Stress-Tested

To ensure all variable-rate customers are prepared for any changes, we must stress-test their mortgages with the qualifying rate of 5.25%, which has been stable in Canada for years. It ensures mortgage holders can endure making payments for interest rates up to this benchmark.

Many variable-rate clients can handle the prime rate reaching 6.25% or 6.5%, especially those with a contracted rate of prime minus 1.25%.


a rate house is necessary

4. Rate Hikes are Necessary—for Now

To fight inflation, the central bank needs to resort to rate hikes, which can run for 12-18 months (about 1 and a half years), to help reduce inflation. Fortunately, once we stabilize the target level of inflation, rates will go back down, as Bank of Canada governor Tiff Macklem has suggested.

Choosing a five-year fixed rate presents obstacles, namely, the potential difficulties that could arise if you wish to refinance, downsize, or even break your mortgage before its term is up.

To ensure you make the right decision for your financial goals over the next five years, it’s critical to examine them so whichever plan you execute aligns accordingly.

5. Take Advantage of Current Rates to Pay Down Debt

Reducing debt over prolonged periods, like a 25- or 30-year mortgage, is ideal if you can find the most competitive rate. Paying back your debt quickly reduces the potential risk associated with rising interest rates since there’s less money owed.

Check the premium you’ll have to pay if you lock into a fixed rate, then use extra funds to decrease your debt. Instead of giving more of your hard-earned cash in interest, you will gain momentum toward paying off your mortgage more quickly.


What Else Do I Need to Know About Switching from a Variable Rate to a Fixed Mortgage?

If you’re considering shifting from a variable-rate mortgage to a fixed mortgage, there are some essential things to consider.

Here are four of them:

  • Changing to a fixed-rate mortgage may be challenging, so consider your decision carefully. Terminating a fixed-rate mortgage agreement can result in much more costly penalties than a variable-rate mortgage.
  • To refinance your mortgage, you must qualify for a higher rate than your contract. If you don’t qualify, you’ll have no choice but to remain with the same lender.
  • If the worth of your property has dropped to a point where you can’t access sufficient equity to cover your current mortgage, refinancing may be difficult.
  • Your monthly mortgage payment might only give part of the story. Cash flow is, of course, vital. But it’s how much interest you’re paying that increases the cost of your mortgage.


switching to a fixed mortgage

Switching From Variable to Fixed Mortgage

How to switch from variable to fixed rate mortgage? We’ll answer that question next. If you’re considering moving from a variable-rate mortgage to a fixed-rate, the following steps will help make your decision easier.

Get in Touch with Your Current Lender

Reach out to your present lender and inquire about the terms associated with changing over. Take this chance to discover how much it will cost to leave your mortgage, including any additional fees that may apply. Doing this could help you save or make money in the long run.

Speak With a Mortgage Broker

They will help you decipher your options and determine if refinancing suits your needs. Moreover, they are equipped to provide pre-approval on a new mortgage with accurate information on your eligibility.

Consider Your Needs

Carefully consider what matters to you in a mortgage. Are the potential long-term benefits worth making additional payments upfront? Is it worthwhile to refinance if there’s an opportunity for significant interest savings?

Make the Call

Making any financial decision is a challenge without having all the relevant information on hand. However, use what you do know to make an empowered move. Speak with your lender or mortgage broker and see how they will help you update your details to make them a better fit.


guaranteed successful mortgage journey

Ensure a Successful Mortgage Journey; Plan for Guaranteed Success!

Switching from a variable-rate to a fixed-rate mortgage can be complicated and often confusing. But understanding the potential benefits of this transition is essential to make an informed decision.

Key Takeaways:

Here are the key takeaways to keep in mind when considering switching from a variable-rate to a fixed-rate mortgage:

  • Considering your needs and speaking with a qualified lender or mortgage broker for the best advice before acting is always a wise move.
  • Be aware that refinancing may be difficult if the worth of your property has dropped, and you need more equity to cover your current mortgage.
  • Speak to a professional today and let mortgage experts be your guide to a successful mortgage journey. At LendToday, we are committed to helping you make the best decision for your financial future. With the correct information, switching to a fixed-rate mortgage can be a wise financial situation.