What is a convertible mortgage in Canada?

A convertible mortgage is a mortgage that allows you to switch from one rate type to another during your term without paying a penalty. Most commonly, it lets you convert from a variable rate to a fixed rate mid-term. The conversion locks in a new fixed rate for the remaining term or a new term of equal or greater length. Not all variable mortgages include a conversion option — some lenders offer it as a standard feature while others charge a slightly higher rate for the privilege.

When should I convert from variable to fixed?

Consider converting when you believe rates will continue rising significantly, when you can no longer tolerate payment uncertainty, or when the fixed rate available to you is still historically reasonable. The difficulty is timing — if you convert too early, you lock in a higher rate than necessary. If you wait too long, fixed rates may rise further. A common strategy is to set a personal trigger: convert when the variable rate exceeds your comfort level or when the discount to fixed narrows to less than 0.25%.

What rate do I get when I convert?

You typically get the lender posted rate for the new fixed term at the time of conversion — not the discounted rate you might negotiate on a new mortgage. This is a significant drawback. The conversion rate may be 0.25% to 0.75% higher than what you could get by breaking your mortgage and taking a new one. Always compare the cost of converting (higher rate for remaining term) vs breaking the mortgage (3 months interest penalty + new discounted rate).

Can I convert from fixed to variable?

Generally, no. Most convertible mortgages in Canada only allow conversion from variable to fixed. Converting from fixed to variable typically requires breaking your mortgage and paying a prepayment penalty (three months interest or the interest rate differential, whichever is greater). Some lenders may offer a fixed-to-variable conversion as a special product, but this is uncommon.

Is there a penalty to convert a convertible mortgage?

No. The defining feature of a convertible mortgage is that the conversion itself is penalty-free. However, you may pay indirectly through a less favourable conversion rate (posted rate rather than a discounted rate). Some lenders may also charge a small administrative fee. Always ask what rate you will receive upon conversion and compare it to current market rates before converting.

Convertible Mortgages in Canada: Switch From Variable to Fixed Mid-Term (2026)

A convertible mortgage gives you the flexibility to start with a variable rate and switch to a fixed rate mid-term if market conditions change. Here is how conversion works in Canada, when it makes sense, and the hidden costs to watch for.

How convertible mortgages work

A convertible mortgage starts as a variable-rate mortgage with an embedded option to lock into a fixed rate at any point during the term.

Stage	What Happens
Start	You begin with a variable rate (prime ± spread)
Rate environment changes	You decide you want the certainty of a fixed rate
Conversion request	You contact your lender and request conversion
New rate	Lender offers a fixed rate for a term equal to or longer than your remaining term
New payment	Your payment is recalculated based on the new fixed rate
Penalty	None for the conversion itself

Key conversion rules

You can typically convert once — after converting to fixed, you cannot convert back to variable
The new fixed term must usually be equal to or longer than your remaining term. If you have 3 years left on a 5-year variable, you can convert to a 3-, 4-, or 5-year fixed
You convert the remaining balance — there is no additional borrowing at conversion
The conversion is with your current lender only — you cannot convert to a different lender’s fixed rate

Conversion rate: the hidden cost

The biggest drawback of a convertible mortgage is the rate you receive on conversion.

Scenario	Typical Rate
New mortgage (negotiated)	Lender’s best discounted rate (e.g., 4.29%)
Conversion (from variable)	Lender’s posted rate or near-posted rate (e.g., 4.79%)
Difference	0.25% to 0.75% higher

This rate premium can cost thousands over the remaining term:

Example: $450,000 balance, 3 years remaining

Option	Rate	Monthly Payment	Total Interest (3 years)	Total Cost
Convert to fixed	4.79% (posted)	$2,582	$55,308	$55,308
Break and get new mortgage	4.29% (discounted)	$2,493	$49,524	$49,524 + $3,375 penalty = $52,899
Stay variable (if rates stable)	4.25% (current)	$2,486	$49,128	$49,128

In this example, breaking the mortgage and getting a new discounted rate saves $2,409 compared to converting — even after paying the 3-month interest penalty.

When conversion makes sense

Convert When	Stay Variable When
You have a long time remaining (3+ years) and spreads are widening	The variable rate is still significantly below fixed
You cannot tolerate further payment increases	You have budget flexibility for payment variability
The Bank of Canada signals sustained rate increases	Rate cuts are expected in the near future
The conversion rate is close to the discounted rate	The gap between conversion and discounted rates is large
Breaking the mortgage would incur a large penalty (e.g., IRD on a blend)	The penalty for breaking is low (3 months interest)

Convert vs break: decision framework

When you want to switch from variable to fixed, you have two options. Calculate both before deciding:

Option 1: Convert (penalty-free, higher rate)

Conversion rate × remaining balance × remaining term = total cost
No penalty

Option 2: Break and get a new mortgage (penalty + lower rate)

3 months interest penalty on remaining balance
Plus: New discounted rate × remaining balance × remaining term = total cost

If the savings from the lower discounted rate over the remaining term exceed the penalty cost, breaking is better than converting.

Break-even formula

$$\text{Break-even} = \frac{\text{Penalty cost}}{\text{Monthly savings from lower rate}}$$

If the break-even period is less than your remaining term, breaking is better than converting.

Lender comparison: conversion features

Lender	Variable-to-Fixed Conversion	Conversion Rate	Minimum New Term
RBC	Available on most variable products	Posted rate	Equal to or greater than remaining term
TD	Available	Posted rate — negotiation possible	Remaining term or longer
BMO	Available	Posted rate	Remaining term or longer
Scotiabank	Available on STEP variable	Posted rate	Remaining term or longer
CIBC	Available	Posted rate	Remaining term or longer
Monoline lenders	Varies — some offer, some do not	Varies — some offer better conversion rates	Varies

Note: “Posted rate” means the lender’s publicly listed rate, which is higher than the discounted rate available to new mortgage applicants. Some lenders will negotiate the conversion rate if you push back — it is worth asking.

Short-term convertible mortgages

Some lenders offer a 1-year convertible fixed mortgage — a short-term fixed rate that you can convert to a longer fixed term at any point during the year.

Feature	1-Year Convertible
Starting rate	Usually higher than a standard 1-year fixed
Conversion option	Switch to a 3-, 4-, or 5-year fixed at any time
Best for	Buyers who think rates will drop within a year and want to lock in later
Risk	If rates rise, you convert at a higher rate. If rates drop, you could have just taken the longer term

This product is a bet that rates will be lower within a year. It was popular in 2023–2024 when borrowers expected the Bank of Canada to cut rates.

Convertible mortgage strategy

If you are considering a convertible variable mortgage:

Ask for the conversion rate upfront — Before signing, ask your lender what fixed rate you would receive if you converted today. Compare this to the discounted rate for new mortgages
Know the break-even math — At what point does breaking the mortgage and getting a new discounted rate become cheaper than converting?
Set a personal trigger — Decide in advance at what rate or spread differential you will convert. This prevents emotional decision-making during rate volatility
Monitor the bond market — Fixed mortgage rates are driven by bond yields, not the Bank of Canada rate. If bond yields are rising, fixed rates are likely to follow — which may signal it is time to convert
Consider the full term cost — A 0.50% rate difference on $500,000 over 3 years is approximately $7,500 in additional interest. Make sure the convenience of penalty-free conversion is worth the premium

The bottom line

A convertible mortgage provides a safety net: you get the flexibility of a variable rate with the option to lock in fixed if conditions change. The trade-off is that the conversion rate is typically higher than what you would get on a new mortgage. Before converting, always compare the cost of conversion against the cost of breaking your variable mortgage and starting fresh. In many cases, breaking is cheaper — especially if you are early in your term.