Conversion rates apply when you convert from a:
- variable rate to a fixed rate
- convertible term to a fixed or variable term
- line of credit to a fixed or variable term
Conversion rates are rarely as good as the rates lenders offer on “new business.” Five-year fixed conversion rates, for example, are often 20 basis points more than the five-year rate a new customer can get from that same lender.
Usually, conversion rates are one of the following:
- a set amount below posted rates
- a negotiated rate at the time of conversion
- a pre-defined discounted rate
- the lender’s “broker rate.”
Broker rates are typically the lowest of the above options but it depends on the lender.
Tip: If you’re converting from a variable to a fixed rate, the term of the new fixed mortgage must often be at least 3-5 years (depending on lender).