Can You Switch Mortgage Lenders?
Although Canadian mortgages typically come with an amortization period of 25 years, unlike their American counterparts, rates and terms are usually only locked in for a 3-5 year term. At the end of each term, borrowers can choose to either renew their mortgage with the same lender or refinance with a new lender. What you may not have known is that it is technically possible to switch your mortgage lender at any time, not only at the end of your term.
What Are The Benefits Of Switching Mortgage Lenders In Canada?
| Pros of Switching | Cons of Switching |
|---|---|
|
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“ Ultimately, the decision to switch lenders will depend on your current financial situation and your future financial goals. What is right for one borrower may not be right for another.”
Nadine Savlov , Mortgage Broker Level 2
How Can I Switch Mortgage Lenders?
- Find a New Lender: For this step, you can either compare online and publicly posted rates yourself, or you can work with a Clover Mortgage broker to help you narrow down your options. Our brokers have experience working with a network of over 60 different lenders, and can help you find the best rates and terms you qualify for.
- Formally Apply: Once you have chosen a lender, you will need to submit a mortgage application to them. This process may require you to send over a renewal letter (from your current lender), proof of home ownership, income verification, or more, depending on your new lender’s policies
- Send Over the Payout Statement: Once your new lender approves your mortgage, they will ask you to send them a Payout Statement from your current lender. This document will outline how much of your mortgage you have yet to pay off, which will become your new mortgage amount
In addition to these three steps, you may also have to address various fees, regulatory processes, or logistical concerns throughout the process. This will vary lender to lender.
How Does Switching Mortgage Lenders Impact my Interest Rates?
One of the most common reasons for switching mortgage lenders is to secure a lower interest rate . Mortgage interest rates depend on several factors, with each lender having varying figures. A lower interest rate will often mean a lower monthly payment on your mortgage, making a significant difference in the long-run. Here are the current interest rates and switching benefits offered by the Big Six banks:
| Lender | 5-Year Variable | 5-Year Fixed | 3-Year Fixed | Benefits |
|---|---|---|---|---|
|
4.68% | 4.52% | 4.73% | 130-Day Mortgage Rate Guarantee |
|
4.75% | 4.59% | 4.64% | $5,700 Switching Fee Rebate |
|
5.14% | 4.94% | 4.94% | $4,100 Cash Bonus |
|
4.45% | 4.24% | 4.64% | $4,500 Cash Bonus |
|
5.65% | 6.49% | 6.54% | $1,500 Switching Fee Rebate |
|
4.70% | 4.59% | 4.69% | $4,000 Cash Bonus |
What is the Cost of Switching Mortgage Lenders?
When looking to switch mortgage lenders, there are several fees associated with the process.
Appraisal Fee ($350-$500) - You will likely need to have your home re-appraised when switching providers to verify the property's value for the new lender
Assignment Fee ($20-$350) - Your current lender sets the assignment fee, which is the cost of transferring the mortgage to the new lender
Discharge Fee ($0-$400) - Your mortgage discharge fee is the cost of being released from your current mortgage and will be noted in your existing contract
Title/Legal Fees ($500-$2500) - A lawyer is needed to complete the legal paperwork associated with switching mortgage lenders, with legal fees depending on the specifics of the transaction
However, you can also save money by switching to a lender with a more favourable interest rate. Here is an illustrative example of fees vs savings you may incur in a 5-year period:
| Before Switching Lender | After Switching Lender | |
|---|---|---|
| Loan Amount | $800,000 | $800,000 |
| Amortization Period | 25 years | 25 years |
| Interest Rate | 6.49% | 4.24% |
| Monthly Payment | $5,396 | $4,329 |
| Lender Renewal Fees (Total) | – | $2,300 |
| Total Owed | $323,760 | $262,040 |
In this example, switching to a new mortgage lender can save you over $60k in a 5-year period.
Although each case is different, there are certainly situations in which the financial benefit of switching your mortgage lender at renewal outweighs the cost. For a more personalized assessment of your best options, you may want to work one-on-one with an expert broker. Contact Clover Mortgage today to set up a free consultation.
FAQ
Can I switch mortgage lenders without paying penalties?
You may be wondering: Is there a Penalty for Switching Mortgage Lenders? The answer is yes; by changing mortgage lenders before the end of your current term, you may face significant penalties — sometimes amounting to thousands of dollars. To avoid unnecessary penalties, switch your mortgage lender only once your current term is up.
When switching mortgage lenders, what steps should I take to ensure a smooth process?
When switching mortgage lenders, it is vital that you start the process at least 2-3 months prior to your current term expiring. Applications like this take time to process and require a thorough review. Starting the application early will also give you adequate time to shop around and find the lender that provides the best rate and service for you. Finally, review your current mortgage agreement for penalties, fees, and conditions related to switching lenders. Analyzing these costs will help you determine whether a switch is beneficial.
How do you go about switching mortgage lenders at renewal?
Step 1 - Start Early – Begin shopping around 2-3 months before your renewal date
Step 2 - Get Pre-Approved – Secure a pre-approval with the new lender to lock in a rate
Step 3 - Notify Your Current Lender – Check for any fees or switching conditions
Step 4 - Submit Your Application – Provide necessary documents
Step 5 - Finalize the Transfer – Review and sign the new mortgage agreement!
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