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Keep Line of Credit or Switch to Fixed Rate Mortgage?

Keep Line of Credit or Switch to Fixed Rate Mortgage?

I received a question by email from Judy, who’s considering switching her line of credit over to a fixed rate mortgage to lock in the current low rates. I wanted to share it here for two reasons, I’d like to see what other reader’s opinions are on this and thought it might help other readers that may have similar questions about what the future might hold for interest rates.

Which is safer today, hanging onto a line of credit at prime or locking into a 3.85% five year fixed rate? Does there appear to be an inflationary trend on the horizon or will interest rates remain low in the next three years?

Looking at 5 years I would personally lean towards the 3.85% since that’s only 1.6% higher than the historically low prime rate of 2.25%. The average prime rate over the last five years is a little over 5% so there’s a reasonable expectation that it could just as easily be 5% for the next 5 years. Here’s a handy link from CanEquity that shows variable prime rates and 5 year fixed rates.

The other side of it is that the Bank of Canada said they do not plan to raise rates until June. While that sounds good for the next few months, even if they can stick to that plan the rates could easily jump 0.5% three times in a row after that. One thing for sure is that interest rates only have one direction they can go at this point, and that’s up.

That’s my opinion, of course we can’t tell the future but the odds are that the next 5 years could be 5% on average, possibly more. What does everyone else think? I’d like to hear some other thoughts on which choice you would make and why.


  1. JoeTaxpayer

    I would grab the 3.85% without a doubt. The risk is very high that at some point, maybe a year or a bit more, that rates will rise again, and that 3.85% will look like the smartest thing anyone could have.

  2. mfd

    3.85% is a good rate. I personally believe rates but be this low forever. However I would lock in simply for the stability factor. I like to know exactly how much my bills are going to be every month.

  3. cy

    even if prime hits 3.85 or a bit higher in a year or two, you’ve still saved a little money during all the months you were paying 2.25. so prime would have to go up pretty fast and soon for the 5 year to benefit you. i’d lean towards the variable, even though it’s a little riskier. the truth is that i’d be more concerned anyway about what’s going to happen in year 6 etc. Even the 5 yr doesn’t protect you for that long so you might as well take advantage of the 2.25 while you can get it.

  4. John

    The interest rates on a morgage is calculated monthly. Most line of credit intrest is calculated daily, making straight percentage comparisons imposible. The only way to get a handle on the comparison is to crunch the actual numbers then recalculate the interst using the cost of borrowing.

    • Dina

      How is this done John? I am deciding on either a mortgage or a line of credit for my home. Which would cost me less in the end, assuming I am paying more than the interest on the line of credit.

  5. Henry

    The biggest benefit of a fixed rate mortgage is that you will know precisely what your mortgage interest and principal payments are going to be and hence plan your budgeting in accordance.

  6. Mtg Guy

    For me, personally, I would take a Variable Rate mortgage, which right now are priced as low as 1.85% This is too low of an interest rate to ignore when there is no upward pressure on rates at this point. Ride the VRM until we hear that rates may rise, then at that point lock in to a fixed-rate at whatever term you like. This way you are maximizing your time at a low interest rate. There is no sense in paying a 2 point premium on the fixed rate at this time.
    The downfall to the Line of Credit is that you are paying a higher premium for a product that has just about all the same features as a VRM.
    Just my opinion.

  7. TC

    My husband and I have just purchased a condo unit as a rental investment and we are deciding whether to use a line of credit (LOC) or a variable rate mortgage (VRM). From the viewpoint of cash flow, LOC will give us the best flexibility if the unit is vacant and we won’t need to commit to a fixed monthly mortgage payment except for the LOC interest. As well, the monthly interest will be tax deductible since it’s an investment. On the other hand, VRM has a very attractive rate making it hard to ignore, as Mtg Guy has mentioned above.

  8. moe

    foolish move. i would have held on the the line of credit at prime – you CANNOT get that rate now!! in Canada, the cheapest line of credit you can get is prime +0.75%, and banks always discourage it because, well, they don’t get as much comission off it. Ask them for the line of credit at that rate again, see what they say 😉

    • Dina

      Can a line of credit be paid off faster and with less interest paid to the bank versus a mortgage?

  9. Richard Rinyai

    Historically, variable rates have been lower over the whole amortization of any mortgage. I would never go into a fixed rate.



    • Marlen

      Historically you are better off in a variable rate product. This can be seen at and click on The Canadian Site. Ive been in banking for over 20 years and many clients have done better in this product.

  10. New Mgg

    Where can I get 2.25% or even 1.85% VRM?
    The posted rate at big 5 is 3.1% now. One can negotiate a bit but not down to 1.85%

    • centeron

      what good time sensitive discussion without giving the dates of the article or the replies?

  11. Mary

    I was very appriciated on the post you have written. I enjoyed the information about Credit.Thanks Tom Drake

  12. teresa gomes

    which is cheaper on the long run mortgage or line of ceridt

  13. Judy Allan

    Can i switch from existing LOC to a mortgage on that amount of the LOC?

  14. Bradley White

    We have this delemma at present.
    I think we are going to stay with the variable HELOC as it is so much more flexible even though we were offered 1.65 on a variable mortgage last week… I’m sure it is now just over 2% today as the BofC raised rates by half a point.
    We are planning to cash in on our profit with BNS stock that we’ve made a 70% profit on since buying it in May of 2020 and reducing the amount outstanding on the HELOC to offset any higher rates of interest coming our way.
    Do you think this is a good decision??

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