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Locking A Variable Rate Mortgage? Here's What To Expect!


The economic uncertainties due to COVID-19 have had many people with variable rate mortgages wanting to lock them into fixed rate mortgages. Once you reach out to a lender, he will handle the process for you, and you could face two possible scenarios: a) pay more interest or b) break your mortgage in order to convert to fixed rate mortgage and pay even more money.


Any lender will happily help you in locking into a fixed rate mortgage as they are likely to make a lot of money in the process. Here's what to expect from the whole procedure:


Higher Penalties: The cost of breaking a mortgage is calculated by each lender in a different way, though it is the big banks that are likely to charge a higher penalty than other lenders. You should know that when you are about to break a variable mortgage you will have to pay up an approximate interest of three months. This cost varies in different situations such as breaking fixed rate mortgages, or when you have a certain amount of mortgage balance and so on.


High Rates: If you are currently holding a variable rate mortgage you would probably know that you took it up as it offered a lower rate of interest as against fixed rate mortgages which are always expensive. It is believed that fixed rate mortgages are safer compared to variable rate mortgages which bring along a certain 'uncertainty'. Though the uncertain nature of variable rate mortgages is a fact, but there are measures in place which ensure that the rates don't play with your pockets tremendously. So your variable rate mortgage is unlikely to quadruple overnight because as per Bank of Canada, the scheduled rate announcements are made only 8 times each year and it will seldom cross 0.25% in any change.


Breaking a Mortgage – Why does the situation arise: Statistics tell that 6 of 10 Canadians break their mortgages in 38 months. When someone locks their variable rate mortgage to a fixed rate mortgage, they should know beforehand that the cost of breaking the mortgage will increase manifold. The reasons why someone may be forced to break a mortgage could be:


· Change in relationship status for example marriage, divorce, moving in with a new partner, etc.

· Sale or purchase of a house

· To pay off loans

· To pay off the mortgage before its maturity date in case of a windfall money gain, etc


There could be several other reasons for breaking a mortgage too, but all in all, one should know that while locking your current variable rate mortgage to a fixed rate one means you are agreeing to pay more. While doing so, you are also giving up the flexibility that comes with a variable rate mortgage.

We strongly suggest you shop around and talk to various mortgage brokers before signing up anything. We are happy to help you on a case-to-case basis, and always keep your finances and all other needs in mind!

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