Purchasing a home is one of the largest investments that most Canadians will ever make. Along with committing to a new address, homeowners are usually committing to a mortgage and a long-term loan agreement. Mortgages are designed to last for decades and A LOT can happen during this time. Life happens and the mortgage agreement and / or lender that made sense at the time of your purchase may not make as much sense after a few years or life changes. That’s where a mortgage switch can provide a big benefit.
Instead of being trapped in the original mortgage arrangement, making a mortgage switch mid-term or at renewal offers borrowers the chance to make changes to their payment frequency and amount, opt for more beneficial terms and conditions or perhaps refinance completely.
Why Switch Lenders?: When Making the Mortgage Switch Makes Sense
Switching mortgage lenders involves either transferring your home loan from one lender to another or refinancing with an entirely new contract altogether. There can be advantages to switching lenders, some of which might include incentives and more favourable terms. If you are wondering whether or not a switch can benefit you, consider the advantages and potential penalties or fees, associated with the process:
- Lower Interest Rate: Property is a great investment, but it is an expensive one. When dealing with large sums of money, even a small interest rate differential can make a huge difference. If a lender is offering mortgage rates that are lower than what you currently pay, it could save thousands in interest payments over time.
- Better Terms and Conditions: When entering into a mortgage agreement, there are very strict terms and conditions that must be adhered to. These conditions dictate pre-payment options, maturity date and renewal date. While some of these may work just fine for you, others may be less agreeable as time goes on. Pre-payment options are one of the most commonly contested. If your current lender does not offer sufficient pre-payment flexibility, switching lenders to a more accessible pre-payment plan can help to pay down mortgages faster.
- An Option to Refinance / take equity: Just because someone owns property does not mean that they have cash on hand. Other investment opportunities or large bills present themselves every day. When looking to renovate homes or fund college educations or pay student loans / lines of credit, refinancing can make it possible to access equity in the home in exchange for cash / liquidity which can be used to pay down higher interest outstanding debts, reinvest this capital elsewhere (RRSP or vacation property?) or just a safety net down the road.
- Accommodate Changing Financial Situations: The most common length of a mortgage term is 5 years and trust me, a lot can happen during this time. Household incomes can go up or drop / stop, you may have welcomed a new baby, gone back to school, started a new venture etc.. No matter what has happened, it is important that your payment amount is aligned with your budget and cash-flow. Switching lenders can help to reset your payment amounts, interest rate and length of loan.
What to Expect When Switching Lenders
You do not have to wait for a mortgage renewal to start the mortgage application process. Before you commit to switching lenders, it is important to understand everything that goes along with it. A mortgage professional can help you find out whether the pros of switching outweigh the cons of prepayment fees etc. It’s always best to consult with an independent broker about the best way to move forward.
The good news, we have programs that, in certain circumstances, can cover some / all of the costs of switching the mortgage to a new lender that is better suited to your current situation or able to save you money going forward.
Is your mortgage up for renewal this year?
Do not wait for a renewal statement or call from the current lender to get the ball rolling on your mortgage switch or renewal. Some banks / lenders really slow-play getting these out in hopes that you sign their offer without shopping around once received.
You also don’t want to blindly accept that “Early renewal” phone call offer that many banks try around the ‘6 month to renewal’ mark. Trust me, banks are in the make money business and when they call you with an offer, the aim is to make more money, not to ensure that a new mortgage is the best possible fit!! Treat your mortgage renewal like an opportunity, not just a deadline to simply sign to set & forget for another 5 years.
By looking ahead to the future, it is possible to align / refine your financial goals. A Mortgage Professional is able to help you with the research process & discuss the best options for you / your family going forward. From there, we can help gather any necessary information and align the best possible mortgage.
Our goal is to make the process easy and as always, to save you money.