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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Mortgage Crisis

By Tracy Head • September 5, 2025
A wise broker friend of mine once told me there is no such thing as a mortgage emergency. I think this may depend on whose perspective this is. I’ve thought about her statement over the years. I think what constitutes a mortgage emergency really depends which end of the transaction you are on. One situation I run into regularly is clients who have left dealing with their mortgage renewal until the bitter end. This doesn’t necessarily constitute a mortgage emergency if you are not planning to make any changes to your mortgage and you intend to stay with the same lender. However, if you are in a private mortgage that was intended to be a short-term solution leaving your renewal until the bitter end can put you in a precarious position. Not all private lenders automatically offer renewals. Some charge a significant fee to renew for another term. Some will renew but dramatically increase your rate. If your plan was to move to a traditional lender once your private mortgage comes up for renewal this process can take weeks and in some case months. Depending on your situation a refinance to pay out your private mortgage can be very challenging right now with stricter qualifying guidelines and higher interest rates. Sometimes clients are proactive with their plan to move from a private mortgage and we run into problems and additional document requests from the new lender or challenges like delays in getting appraisals done. Whether you are in a private mortgage or your mortgage is with a traditional lender I suggest you start looking into renewal options about six months ahead of your maturity (renewal) date. We can lock down an interest rate hold for you four months ahead of your maturity date but I love to have a conversation with my clients about six months prior so we can develop a plan as to how we will handle their upcoming renewal. Not all lenders offer an open mortgage at renewal so if you dawdle too long you may end up locked in with your current lender for a bit longer. If you have left your mortgage renewal until it is right around the corner don’t panic. Many lenders do offer an open mortgage so you can opt for this to buy yourself some time if you are planning to make any changes to your mortgage. Take some time to evaluate your options. Small tweaks can potentially make a significant difference to your bottom line so it is key to work with a professional that has your best interests at heart.

Early Renewal

By Tracy Head • August 27, 2025
Does an early renewal make sense? 2020 was a very busy year for home buying and mortgages. This means that 2025 is and has been a busy year for mortgage renewals as the majority of clients seemed to choose five year terms in 2020. I’ve had lots of conversations with my own and new clients about whether it makes sense to renew early. Each conversation is slightly different based on client needs and their individual circumstances. Most of the time I suggest that clients stay with their current lenders until their renewal dates because their current interest rates are anywhere between 1.6 per cent and 2.79 per cent. If you don’t need to make any immediate changes it makes the most financial sense to stay put until your term runs out. We can start the process of either switching or refinancing mortgages four months ahead of your renewal date and lock in a rate for you. As a generalization, when people ask about doing a straight switch (not adding any money to their mortgage) I will do a survey of what interest rates are available so they can go back to their lender to try to negotiate a great rate. Time and time again I’ve worked with clients on switches for them to cancel at the last minute as their current lender finally sharpens the pencil rather than lose the client. This is why I always try to help people negotiate with their current lender rather than put everyone through the work of having a new mortgage approved. If clients are wanting to add money to their mortgage to pay out consumer debt or pay for home renovations that changes things a bit. Some lenders are more aggressive with their refinance rates so it makes sense to make a move. Another situation has popped up this week that has had me crunching numbers for multiple clients. One of my favorite lenders came out with a quick-close rate special that is pretty hard to pass up. The fine print is that the new mortgage has to finalize within thirty days. I have been working on a refinance at renewal for clients that is set to close at the beginning of November. I took a look at how their current lender calculates the payout penalty when they are this close to renewal. It turns out they charge daily interest instead of a three-month interest penalty or interest rate differential. So I did the math. If we pay out early to take advantage of this great interest rate their payout penalty is around the $1000 mark. Over the term of the new mortgage they will save approximately $5500 in interest cost and their monthly payment will be about $85 per month less. Even after they pay out the penalty to move a bit early they will still be $4500 ahead over the term of their mortgage. This is one of the few times I’ve recommended that it makes sense to move forward ahead of the renewal date.  If you have a renewal coming up over the next few months I’d say it’s a good idea to connect with your mortgage person to look at what rates are available now and figure out whether it makes sense to consider making a move sooner rather than later. Lenders will pop up with rate specials from time to time so it is worth having your mortgage professional keep an eye open for you as your renewal date comes closer. It may just save you a significant amount of money.