How Easy is it to Switch Mortgage Lenders for a Lower Rate?

July 31, 2014 | Posted by: Ron Chan

With today’s historically low rates, many Canadian homeowners are looking for advice as to whether they should move their mortgage for a better rate. You can switch to another lender at any time, although renewal is often when homeowners decide to transfer their mortgage.  Some typical questions you may have:

Will I pay a penalty if I transfer my mortgage?

There are no fees or payout penalties if you switch at mortgage renewal, otherwise there likely will be a penalty, although often paying the penalty to get a lower rate can save thousands.

If there is a penalty, what will it be?

Generally, you can expect to pay the greater of either a) three months’ interest, or b) the interest-rate differential (IRD). With the IRD, your lender will expect you to pay the equivalent of what they will lose by releasing you from your mortgage and lending the money at current rates.  Often penalties can be rolled into the new mortgage so you don’t have to be out of pocket. 

What happens when I transfer my mortgage?

Once you are qualified, your current mortgage balance and remaining amortization period are transferred to your new lender at the new rate, which your mortgage payment will be based on. 

Can I use this opportunity to increase my mortgage for some needed funds?

Yes. Without incurring fees, our lenders will permit you to add on to the new mortgage as long as you don’t exceed the original mortgage amount.  Although each lender is different, you can typically add $2,000 and in some cases $5,000. You also have the option of a total refinance if you need more, but you will be subject to fees similar to those incurred with registering a new mortgage.

How long before my mortgage renewal date should I start the process?

You should think about switching your mortgage 120 days before your mortgage renewal. Many lenders provide a 120-day rate guarantee.  This also provides ample time to complete the process and avoids any last minute decisions.

It's common for lenders to offer really low rates to attract a new mortgage to their institution. We see this all the time with stores like Best Buy, Canadian Tire and McDonald's. These stores will offer special deals or sales to attract the buyer then try to increase their profitablity by upselling or getting the customer to come back for another purchase. Lenders behave similarly in that they hope to win you as a client then hope to get you to renew once the first term is due. The renewal or the second term can be more profitable to the lender as the cost of keeping you is not a great as the cost of acquiring you.  Additional margin is gained if they are able to secure you at a desirable renewal rate. The key take-a-way here? Always shop your mortgage renewal around. You can do this by giving me a call or by spending a little time researching on the internet.

A common myth is that switching your mortgage for a better rate is difficult. It’s actually an easy mortgage transaction. Let me show you how! 

Remember! Money is just a commodity, who you rent the money from (for the most part) should not matter. The less you pay in interest equals more money for you.

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