Modifying an existing variable rate mortgage to a fixed term: a step-by-step guide.


If you’re a homeowner in Canada, you have choices when it comes to mortgages. One of those choices is a fixed-term mortgage, which can give you peace of mind with steady interest rates.  

In this guide, we’ll show you how to transition to a fixed-term mortgage, covering steps for increased security, lower rates, or move away from short-term fixed-rate mortgages. 

1. Understanding fixed-term mortgages.

Fixed-term mortgages are like having a set plan for your home loan. Imagine you have a special deal where your interest rate stays the same for a certain time, like 1 to 10 years. This helps you avoid surprises if interest rates go up.  During this time, your payments will always be the same, so you know exactly what to budget for. It’s like having a stable, predictable mortgage; for example, interest remains the same during the term length. Payment remains the same until your term is up for renewal. In a way, it will provide stability in terms of both interest and payment. 

These special plans can have different lengths, from 6 months to 5 years, 7 years, or 10 years, and the interest rates can vary. When the plan is over, you can choose another plan that works for you. Fixed-term mortgages give you peace of mind because your payments stay consistent, making it easier to plan your finances. 

2. Check your current mortgage.

Evaluate your current mortgage terms, balance, and penalties to see if switching aligns with your financial goals. 

If you are in a term mortgage where your payment is mostly going towards interest and you are paying off a small amount of principal, you can switch to a fixed term mortgage. But, before you make that decision, sit down with your mortgage specialist to see if it’s a good idea. You’ll want to know if paying a penalty now could save you money in the long run by lowering your payments for the whole time you have the mortgage. 

3. Research fixed-term mortgage rates.

Just like any significant financial decision, it’s important to stay well-informed about fixed-term mortgage rates. Our dedicated mortgage specialist team is here to assist you in finding rates and terms that will suit your needs and budgets. If your mortgage is up for renewal, start this process a few months before your current term ends. This way, you have plenty of time to explore your options. 

4. Contact your lender or mortgage broker.

Reach out to your lender or mortgage broker with your intent and follow their guidance.  

As this is a big decision which needs expertise as well as personalized advice, book an appointment with Vancity Mortgage Specialist. Our team will provide advice that aligns with your financial goals. By using all the financial tools available, our team will guide you towards a confident financial future. 

Fixed-term mortgages are like having a set plan for your home loan.

5. Negotiate the terms.

Discuss options with your lender for a competitive rate and suitable term. Always start the negotiation with the existing lender as they might offer you a better discounted rate. Share the rates you’ve been offered by other lenders and be ready to prove them.  

Based on unique situations for every borrower, terms should align with their financial goals. If you have children who will be changing school in 2 years’ time and you have to relocate because of this reason, then it will be better to go for that term. If you opt for the longer term this could add to the financial burden as if this property needs to be sold, it might incur a huge penalty. Also, ask about “port options” to transfer your mortgage to a new property if necessary. 

6. Consider short-term fixed-rate mortgage.

When you change to a longer fixed mortgage term, it means your interest rate stays the same for a longer time. But there’s also something called a short-term mortgage, which has its own advantages and disadvantages. 

Switching to short-term has risks that may not work for everyone. They’re a good choice if you believe that interest rates will drop soon or stay low for a while. Your choice also depends on your life plans. For example, if your job involves moving around a lot, or if you expect changes in your employment, a short-term mortgage might be better. Most importantly, terms should be selected based on one’s experience and expectation of the economy. 

7. Evaluate associated cost.

When you’re comparing your options, think about the extra expenses like fees for changing your mortgage and legal costs. 

If you are switching your mortgage to a new lender, there would be different fees you might end up paying. These fees would be Appraisal fee and legal fees plus closing costs. If you are switching mortgage on the day of maturity of exiting term, then you won’t be paying any penalty, elsewise there would be a penalty for breaking the term too. Remember, you don’t always have to change your mortgage to get a better deal. Talk to our Vancity Mortgage Specialist team, and we can reevaluate your needs and help you to get better terms and rates. This way, you can save money by avoiding legal fees for switching. 

8. Review and sign the new agreement.

While reviewing your new agreement ensure that whatever is written and stated is clear and accurate. Before signing the legal agreement, confirm that whatever was discussed is on the new agreement. Take your time to review thoroughly, and if you’re not clear about anything in the new agreement, talk to the lender or see a lawyer for legal advice for better clarification. The new agreement should have a principal amount of mortgage at the end of term, payment frequency and payment amount, term rate and any fee charged. It’s important to be sure of what you agree to, so don’t rush this step. 

9. Be prepared for the transition.

Stay connected with your lender for a smooth transfer, noting potential payment changes. 

For personalized advice that aligns with your financial goals, book an appointment with a Vancity Mortgage Specialist. Our dedicated team is committed to supporting you, making sense of these changes, and guiding you towards a confident financial future.  

Did you know that Vancity offers mortgage insurance? Our Group Mortgage Protection (GMP) can help you rest easy knowing you’re covered if the unexpected happens. Learn more about all our coverage options.

This blog post provides general information only, and does not constitute financial, accounting, tax, legal or other professional advice. We encourage you to obtain personalized advice from qualified professionals regarding your particular circumstances. Please see our Terms of Use.

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