Before You Buy
Three mortgage decisions that arrive years apart and are usually made in a hurry. What a fixed or variable rate actually buys you, why renewal is the moment most owners quietly give away money — including a 2024 rule change that made switching lenders easier — and how a prepayment penalty and the interest rate differential are calculated, before you need to know.
Three separate mortgage decisions face most owners, and they arrive years apart: which type to take, what to do at renewal, and what happens if you need out early. The first gets researched heavily. The second gets a letter that is signed and returned. The third is discovered at the worst possible moment.
A fixed rate is fixed for the term: your rate and, normally, your payment do not move. You are buying predictability, and you pay something for it.
A variable rate moves with the lender's prime rate. Some variable products keep the payment steady and change how much of it goes to principal; others change the payment itself. Which kind you have matters enormously when rates move, and it is a question worth asking explicitly rather than assuming.
The honest framing is not which is cheaper — nobody knows that in advance — but how much rate movement your household can absorb without distress. A borrower who would be genuinely stretched by a payment increase is buying something real with a fixed rate, whatever the long-run averages say. A borrower with room to absorb it is in a different position.
One asymmetry worth knowing before you choose: the penalty for breaking a fixed mortgage early is usually calculated very differently from a variable one, and it is often far larger. If there is a realistic chance you will move or refinance mid-term, that belongs in the decision. It is covered below.
This confusion causes more misunderstanding than any other piece of mortgage vocabulary.
The amortisation is how long it takes to pay the mortgage off entirely — commonly twenty-five years. The term is how long your current contract lasts, commonly five years or fewer. At the end of the term you have not finished paying; you have finished this contract, and you renew for another term at whatever rates then exist.
So a twenty-five-year amortisation with five-year terms means you will renegotiate this loan four or five times over its life. Each of those is a decision point, and the mortgage payment calculator is the fastest way to see what a different rate does to the payment.
Your lender sends a renewal letter, often with a rate on it and a form to sign. Signing it is the easiest thing to do and frequently the most expensive, because the rate offered to an existing customer who does nothing is not always the rate available to one who shops.
Renewal is a genuine opportunity to change things: the rate, the term, whether you are fixed or variable, the payment frequency, and the lender. Start early — several months before maturity, not the week of — because a rate hold and a competing quote both take time to arrange.
Switching lenders at renewal used to carry a specific obstacle: you would have to requalify at the minimum qualifying rate — the stress test — even though you were not borrowing any more money than you already owed. In practice that trapped some borrowers with their existing lender, who did not have to apply it to keep them.
That changed. On 21 November 2024, OSFI exempted uninsured mortgage straight switches from the prescribed minimum qualifying rate.
The practical effect: if you are simply moving the same balance on the same remaining amortisation to a different federally regulated lender, the prescribed stress-test rate is no longer the barrier it was. Increase the balance or extend the amortisation and it is not a straight switch, and you are back in ordinary qualification territory.
This is a rule that moved recently and could move again, so confirm the current position with your broker rather than relying on a page. But it is worth knowing it exists, because a borrower who assumes they cannot switch will not ask.
Selling before the term ends, refinancing to consolidate debt, or restructuring after a separation all mean breaking the contract early — and that usually triggers a prepayment penalty.
There are broadly two calculations. For a variable-rate mortgage the penalty is commonly three months' interest, which is a comparatively modest and predictable number. For a fixed-rate mortgage it is typically the greater of three months' interest and the interest rate differential — the IRD, which compensates the lender for the gap between your rate and what they could lend at now. When rates have fallen since you signed, an IRD penalty can be very large indeed.
Two things follow. Get the actual number from your lender in writing before you commit to anything — before listing, before signing a purchase, before agreeing to refinance. Lenders calculate IRD differently and the difference is real money. And ask whether your mortgage is portable, because carrying it to a new property can avoid the penalty entirely if the timing lines up.
This is why the penalty appears in the real cost of selling in Ottawa rather than only here: it is one of the largest and least anticipated costs a seller meets, and the number is obtainable months before it is needed.
People use the three words interchangeably and lenders do not. Being precise about which one you are asking for changes the answer you get.
None of this requires expertise. It requires asking three or four specific questions at moments that are on the calendar years in advance — which is the whole reason they get missed.
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