Converting a Variable Rate into a Fixed Rate

If you currently have a variable-rate mortgage, you may be wondering whether it makes sense to lock into a fixed rate.

With interest rates continuing to change, many homeowners are looking for more payment certainty and considering a mid-term conversion from a variable mortgage to a fixed mortgage.

The good news is that, in many cases, you can convert your variable mortgage to a fixed-rate mortgage with your existing lender without breaking your mortgage. However, there are several important factors to consider before making the switch.

How the Conversion Works

  • No Penalty: Switching from variable to fixed with with your same lender, mid-term incurs no direct penalty and no costs. 

  • Rate Offered: Your lender will base your new fixed rate on their current fixed rate. While every lender has slightly different policies, the majority of lenders will offer you a term that is equal to or longer than your remaining variable term length.

  • No Re-qualification: Standard mid-term conversions within the same lender do not require full mortgage re-qualification if you are just locking in the existing balance.

Key Factors to Consider

  • Higher Rates: Fixed rates are often higher than current variable rates, meaning your monthly cost may go up immediately. 

  • Locked-In Terms: Once you convert to fixed, you lose the benefit of any future prime rate decreases. 

  • Break Penalties: Fixed mortgages carry much higher financial penalties if you need to break the contract later compared to variable mortgages (which are usually just 3 months' interest). 

  • Would I convert to BEST fixed rates?: When you contact the lender to lock into a fixed rate, be warned that you may not be getting their most competitive rate and it could be surcharged. 

Your Next Steps

  • Contact your mortgage broker with MMG: Call your mortgage broker for advise on how and when to navigate this conversion. In some cases, MMG can work on your behalf to communicate with the bank directly. Depending on the financial institution, you may need to speak with them direct. That said, MMG can provide advise, second opinions and also shop the market to compare options. You will want to request a fixed-rate quote based on your remaining amortization and balance.

  • Compare Payments: Ask for the exact new payment amount on a standard fixed term (& inquire on all term lengths) to see how it fits your household budget.

  • Review Current Trends: If Bank of Canada rates have been shifting, weigh whether you want payment certainty or expect rates to drop further for a possible upside on interest savings

  • Other Options: If your current lender is not offering you competitive options and you do want to make a shift, you can pay a penalty (usually 3 months of interest) and process a new application to move your mortgage to another financial institution. Your MMG Mortgages broker can help support you with these options.

If you're wondering whether converting your variable mortgage to a fixed rate makes sense for you, talk to your MMG Mortgages broker. We can help you understand your options, compare the numbers and make an informed decision based on your individual circumstances.

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