Should You Lock In Your Mortgage Rate in Canada? (2025 Guide)
With interest rates fluctuating in 2025, many Canadians are asking: should I lock in my mortgage now? This guide breaks down when it makes sense to lock, when to wait, and how to protect your budget either way.
In a rising rate environment, locking in your mortgage can seem like a smart defensive move. But is it the right decision for you? This guide helps Canadian homeowners and buyers understand whether to switch from a variable to a fixed-rate mortgage, when to lock in, and how to protect yourself from unpredictable interest rate shifts in 2025.
📚 Table of Contents
• Why Mortgage Rates Are Rising in 2025
• How Rising Rates Affect Variable Mortgages
• Pros and Cons of Locking In
• Who Should Lock In Their Rate?
• When Is the Best Time to Lock In?
• How to Lock In Your Rate
• Related FAQs
Why Mortgage Rates Are Rising in 2025
The Bank of Canada has maintained elevated interest rates into 2025 in an effort to control inflation. While the pace of hikes has slowed, rates remain much higher than during the 2020–2022 period. As a result, borrowers with variable-rate mortgages are facing increased monthly payments and rising financial stress.
Even a 1% rate increase on a $500,000 mortgage can add over $250 per month in interest. This has pushed many Canadians to consider switching to fixed rates for stability.
How Rising Rates Affect Variable Mortgages
Most variable-rate mortgages in Canada are either ‘adjustable’ (where the payment changes) or ‘static’ (where the payment stays the same but amortization grows). As prime rates rise, borrowers with adjustable-rate products are hit with immediate increases in their monthly payments.
Static-payment borrowers may not feel the impact right away, but risk extending their amortization significantly or triggering a ‘negative amortization’ scenario, where interest charges exceed their payment.
Pros and Cons of Locking In
Locking into a fixed rate offers predictability. Your payments won’t change, and you can budget confidently. This is ideal for households with tight margins or those wanting peace of mind over volatility.
However, fixed rates are usually higher than variable at the time of conversion. If rates decline later, you may end up paying more. Additionally, breaking a fixed-rate mortgage early can be costly due to Interest Rate Differential (IRD) penalties.
Who Should Lock In Their Rate?
Consider locking in if:
– Your budget is tight and can’t absorb further increases
– You plan to stay in your home for the full term
– You’re anxious about rising payments and want predictability
You may choose to stay variable if:
– You expect rates to drop within the next year or two
– You have strong cash flow and want to pay off your mortgage aggressively
– You might move or refinance before your term ends
When Is the Best Time to Lock In?
The best time to lock in is when fixed rates are still low relative to projected future increases. Many lenders allow you to switch mid-term, but timing matters. If you wait too long and rates spike suddenly, the new fixed rate you lock into could be significantly higher.
Speak to your lender or broker about the break-even point—where the benefit of stability outweighs the risk of overpaying if rates drop later.
How to Lock In Your Rate
Most lenders allow you to convert a variable mortgage into a fixed one at any time, without requalification. However, your fixed rate will be based on current market rates and the time left in your term.
Here’s how to do it:
1. Contact your lender and request current conversion options
2. Compare those with external offers from other lenders
3. Review penalties if switching providers
4. If satisfied, sign a rate conversion agreement and lock in
📈 Variable vs Fixed Mortgage – 5-Year Payment Impact (2025)
Based on a $500,000 mortgage, 25-year amortization
| Feature | Fixed (5.5%) | Variable (5.0% avg) |
|---|---|---|
| Monthly Payment | $3,067 | $2,909 |
| Total Payments (5 Years) | $184,020 | $174,540 |
| Interest Paid (5 Years) | $122,100 | $114,300 |
| 💡 Difference | Fixed = +$9,480 more in payments, +$7,800 more in interest | |
📌 *This example assumes stable rates for simplicity. Variable mortgages may rise or fall over time, creating more flexibility or risk depending on market trends.
📉 Mortgage Rate Trends in Canada (2021–2025)
📌 *Rates are approximate national averages based on posted lender offers and central bank movements.
Related FAQs
Q. Is it free to lock in your mortgage rate?
A. If you’re staying with the same lender, yes. But switching providers may involve discharge fees or legal costs.
Q. Can I lock in my rate more than once?
A. Typically no. Once you convert from variable to fixed, you remain fixed for the rest of the term.
Q. What’s the difference between rate hold and lock-in?
A. Rate hold applies during pre-approval. Lock-in refers to switching from variable to fixed during your mortgage.
Q. Will rates go down in 2025?
A. Forecasts are mixed. The Bank of Canada is cautious, and rates may remain elevated longer than expected.
Q. What’s the risk of staying variable?
A. Continued rate hikes could increase your payment and extend amortization if you’re not adjusting payments manually.
Final Thoughts: Should You Lock In Your Rate?
There’s no one-size-fits-all answer. Locking in brings certainty and peace of mind, but may come with a price. If you’re risk-averse or at the edge of your budget, fixed rates can offer breathing room. If you’re financially flexible, staying variable might still save money in the long run.
Talk to a mortgage advisor who can help you weigh current rates, lender rules, and your personal goals before making the switch.
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Clara Desai
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