Switching mortgage lenders for a lower rate

Switching mortgage lenders for a lower rate

Posted by Brad Speniel | May 22, 2015 at 1:27 pm



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 the renewal date is often when homeowners decide to transfer their mortgage.  Some typical questions you may have when switching mortgage lenders:

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, 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 is a common myth is that switching your mortgage for a better rate is difficult. It’s actually an easy mortgage transaction and a qualified mortgage broker will gladly guide you through the process.


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