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Most homeowners treat the fixed versus variable mortgage decision like they’re trying to predict lottery numbers. They’re paralyzed, anxious, asking everyone for their opinion.

I’ve watched this play out with hundreds of clients over the past decade. The fear is real. The confusion is understandable.

But here’s what most people miss: this isn’t a prediction game.

Like most financial instruments, mortgage rates deviate from their long-term average based on economic volatility. But eventually, they trend back toward that mean line. When rates sit above the average, they’re likely to come down. When they’re below, they’re likely to move back up.

This principle—mean reversion—gives you a strategic framework instead of a gamble.

From 2013 to 2023, the average mortgage rate in Canada was 3.13%, with the 2010s seeing an average 5-year fixed rate around 5.10%. That’s your baseline.

When rates climb significantly above 5%, you’re sitting above historical norms. Variable rates become a calculated bet on mean reversion, not speculation.

When I’m sitting across from a client and rates are at 5.8%, the conversation goes like this: rates are sitting above the average. It doesn’t feel like it in the moment. The fear is that things will keep climbing. But the last thing you want is to be caught in a high fixed rate, paying that exorbitant amount of interest for years. Variable gives you flexibility to return to the mean as the market corrects.

The data backs this up. The Bank of Canada raised rates 10 times over 18 months—from 0.25% to 5%. Then starting in June 2024, variable rates started trending lower, with prime rate dropping from 7.2% to 4.45% in less than 18 months.

That means reversion in action.

The flip side matters just as much.

When rates dip below 4%, you’re looking at historically cheap money. If you can lock in sub-4% rates and you intend to stay in the property without adjusting your mortgage, there are huge advantages.

Sub-4% is a rate no borrower would be disappointed with after a five-year term. When rates were down in the sub-2% range, you might have felt some regret. But looking back now, if you had locked in sub-4% before rates climbed to 6% and above, you’d be relieved.

The key qualifier: you need to intend to stay in the property.

Getting out of a fixed mortgage in Canada can cost you as high as 4.5% of your mortgage balance—sometimes more. On a $500,000 mortgage, that’s over $22,000 just to break the contract.

If you might be selling your property or need to access equity in the short term, that penalty will more than offset any rate advantage. This is where personal circumstances override the rate environment entirely.

The middle zone requires more nuance.

When we came off the highs of 2022-2023 and rates were trending downward through that middle zone, locking in at 4.5% didn’t make sense when we expected the bottom to go lower. There was opportunity to wait.

Some people advocate for going variable now and locking into fixed later. I think this is backward. Most people wait too long to lock in and miss the opportunity. They often end up locking into a fixed rate higher than where they started.

Here’s why: your indicators are the mass media, and the mass media won’t report changes until they’ve already happened.

Fixed rates move based on bond yields and economist predictions. They’re volatile. They move quickly—often before media outlets report on them. When you start hearing rumblings that rates have changed, they already have. That’s why the bottom gets missed.

In the gray zone, rates are usually transitioning in one direction or the other. You need to understand which direction they’re moving to choose the right option for your situation.

Most homeowners have no idea how penalty calculations actually work.

Banks use arbitrary “posted rates” to set penalties on your mortgage. These aren’t real rates they offer clients. They’re rates banks can move overnight to control how much it costs you to break your mortgage.

They determine the discount you’re given from posted to your actual rate, and that discount gets factored into your future penalty. Banks know the percentage of clients who will break mortgages. They set lower rates with larger penalties built in.

But here’s the opportunity: when rates shift significantly—by 1% or more—these penalty structures create windows where the math works in your favor.

I had a client locked into a 5.8% three-year fixed. One year into their term, we could get them 4.5%. The total interest savings over their remaining term was about $26,000. Their penalty was only $9,000—extremely low for their balance because banks had kept posted rates artificially high.

Net savings: $17,000 in interest over two years.

Instead of taking that as payment reduction, we kept the payment the same and shaved four years off their mortgage.

This only happens with active monitoring. Most people treat their mortgage as “set it and forget it.” That approach costs thousands in missed optimization.

Business owners and self-employed professionals operate differently.

You tend to be less risk-averse. You have the stomach for variable rates more than the average borrower. You also have different opportunities—equity investments that offset borrowing costs, flexibility to make larger lump-sum payments at certain times.

The structure for a business owner can look vastly different than a regular homeowner.

But here’s where I push back: just because you can handle volatility doesn’t mean variable is always the right strategic move. If economic indicators suggest rates are trending upward and you’re sitting at 3%, I’ll urge you to reconsider. The data might be stacked against that choice.

Ultimately, my clients decide. I’m here to provide advice, guidance, and insight. But there are situations where confidence needs to be tempered by strategy.

This is the piece I wish every homeowner understood before walking into a bank.

In Canada, there’s a big distinction between variable products that most people don’t know exists.

Variable fixed-payment: Your payment stays the same, but your amortization goes up or down depending on rate direction. You get payment certainty, but you could see your mortgage balance barely shrink—or even grow in some circumstances.

Adjustable rate mortgage: Your payment goes up and down as interest rates change. No payment protection, but you hold onto your amortization.

During 2022-2023, I saw clients with variable fixed-payment mortgages where their amortization ballooned to 40 or 50 years because their payments weren’t covering interest. That’s where my sub-4% framework was built—seeing people’s payments skyrocket when they should have locked in to take advantage of lower rates.

Opportunity to save money versus risk. That’s the calculation.

Each product can be useful in different situations, different financial circumstances. But you need to know which one you’re choosing and why.

The fixed versus variable decision isn’t about predicting the future.

It’s about understanding historical patterns, knowing where rates sit relative to long-term averages, and—most importantly—aligning your choice with your actual life circumstances.

Are you planning to sell in the next few years? Variable gives you flexibility without massive penalties.

Are you settled and rates are below 4%? Lock in that cheap money.

Are rates sitting above 5%? Variable positions you to benefit from mean reversion.

Are you in the gray zone? Look at the direction rates are moving and your personal risk tolerance.

And regardless of what you choose: monitor your mortgage actively. About 60% of outstanding mortgages in Canada are expected to renew in 2025 or 2026, most of them five-year fixed rates signed when rates were around 2% or less.

If you’re in that group, the decisions you make in the next 12 months will shape your financial position for years.

This is active debt management. It’s the third pillar of building wealth that most people ignore.

Don’t ignore it.

If you’d like to walk through your specific situation and see what makes sense based on today’s rate environment, you can book a strategy call with me here: