Mortgage Basics

Should I Lock-In My Mortgage Rate in Canada?

Should I Lock-In My Mortgage Rate in Canada?
Written by
  • Alivia Massimillo
| 6 March 2023
Reviewed, 6 March 2023
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    As the housing market in Canada continues to thrive, many homeowners and potential buyers wonder if they should lock in their mortgage rates. With interest rates fluctuating frequently, deciding which option is best for you can be challenging. 

    We’ll explore the pros and cons of locking in your mortgage rate in Canada and discuss the potential effects of rising interest rates on variable-rate mortgages. We’ll also explain how switching to a fixed-rate mortgage can help counter frequent rate changes and provide tips on how to lock in your fixed-rate mortgage.

    Key Takeaways

    • There are many factors to think about when deciding to lock in your mortgage rates such as your financial situation and the current financial market overall.
    • Locking in your mortgage rate can insulate you from market volatility and help stabilize your monthly payments over time.
    • Switching from a variable to a fixed-rate mortgage can incur penalties and fees. 

    How Rising Interest Rates Affect Variable-Rate Mortgages

    Variable-rate mortgages are tied to a financial index, such as the Bank of Canada‘s prime rate (4.5% as of February 2023), which can fluctuate as economic conditions change. As interest rates rise, your monthly payments will increase, potentially causing financial strain for some homeowners. If interest rates decrease, meanwhile, your payments will decrease, allowing you to save money. While variable-rate mortgages may offer lower initial rates than fixed-rate mortgages, the uncertainty of future rates can make budgeting and financial planning difficult.

    According to MoneyWise, “as rates increase, more of your payment goes toward interest, instead of your principal.” Over time, you will eventually reach your trigger rate, which is the point at which your interest payments are more significant than your total payments. 

    For example, a homeowner on an adjustable-rate mortgage at $500,000 on a 25-year amortization schedule has monthly payments. At 2%, they would pay roughly $2,117.26 per month. For instance, if the rate increased to 6%, their monthly payment would skyrocket by over $1,000. 

    Switching to a Fixed Rate Mortgage to Counter Frequent Rate Changes

    Switching to a fixed-rate mortgage can provide stability and predictability, as your interest rate will remain the same for your mortgage term. Fixed-rate mortgages are ideal for homeowners who want to lock in a low-interest rate and prefer a steady, predictable payment schedule. 

    However, fixed-rate mortgages may come with higher initial rates than variable-rate mortgages, and if interest rates decrease, you may miss out on potential savings. It’s important to note that fixed-rate mortgages may have higher initial rates than variable-rate mortgages. 

    When considering switching to a fixed-rate mortgage, it’s important to work with a qualified mortgage broker or lender to determine if it’s the right option for you. They can help you assess your financial situation and determine if a fixed-rate mortgage fits within your budget.

    Should I Lock in a Fixed Rate Now?

    Whether or not you should lock in a fixed-rate mortgage now depends on your individual financial situation and your risk tolerance. One of the most critical factors to consider when deciding whether or not to lock in your mortgage rate is the current interest rate. If interest rates are currently low, locking in a fixed-rate mortgage can provide you with a stable and predictable mortgage payment for the duration of your mortgage term.

    If you’re on a tight budget or if you have other major expenses coming up, such as a home renovation or education expenses, a fixed-rate mortgage can provide you with peace of mind and protect you from unexpected increases in your monthly payments. 

    It’s important to consider the costs associated with locking in your mortgage rate, such as penalties. Consider these factors and work with a qualified professional, to make an informed decision about whether or not to lock in a fixed-rate mortgage now.

    How to Lock In Your Fixed-Rate Mortgage 

    You’ll need to sign a rate-lock agreement with your lender to lock in your fixed-rate mortgage. This agreement will specify the interest rate, the length of time the rate is locked in, and any penalties for breaking the agreement. 

    Locking in your mortgage rate can provide peace of mind, as you won’t be subject to sudden increases in interest rates. However, if interest rates decrease during your lock-in period, you won’t be able to take advantage of lower rates unless you pay the penalty to break the agreement.

    Option 1: Break Your Variable Rate Mortgage (with Penalties)

    If you currently have a variable-rate mortgage, you can break your mortgage and switch to a fixed-rate mortgage. Keep in mind that breaking your mortgage before the end of the term can come with penalties, which can be significant. 

    The penalty amount is typically calculated as the greater of three months’ interest or the interest rate differential. This is the difference between the interest rate on your mortgage and the current interest rate for a mortgage with the same term remaining.

    Option 2: Contact Your Lender & Discuss Your Options

    You can also contact your lender and discuss your options. If you have a variable-rate mortgage, your lender may offer a conversion option that allows you to switch to a fixed-rate mortgage without breaking your mortgage. This option may come with fees or penalties, but they are typically lower than the penalties associated with breaking your mortgage.

    Frequently Asked Questions

    Is it better to lock in a shorter mortgage term in 2023?

    It can be, depending on whether or not the Bank of Canada’s interest rate will remain stable and whether or not your mortgage lender has a reasonable rate available. The market is currently stable but subject to fluctuation at any given time over the year.

    What if interest rates fall after I lock in my mortgage?

    It can be frustrating to see interest rates drop after you’ve locked in a fixed-rate mortgage, as you may feel like you’re missing out on potential savings. But, it’s essential to remember that when you lock in a fixed-rate mortgage, you’re choosing stability and predictability over the possibility of lower payments in the future.

    Final Thoughts


    Choosing the right mortgage can seem overwhelming. Comparing mortgages on CompareMortgages.ca makes it easy and efficient to compare rates and features to find the best deal for your needs. With our helpful tools and expert advisors, you’ll be sure to find the perfect mortgage for your financial situation with confidence. Start searching today and find the mortgage that’s right for you.