Everything You Need To Know About Switching Your Mortgage
Published on 19 Dec 2022
When it comes to mortgages, the market is constantly changing. We can see this now more than ever with the extreme rise in interest rates that have occurred in the last half of 2022. With all the changes, the lender you began your mortgage with may no longer be your best option at the time of your renewal. If that's the case, a mortgage switch/transfer is a great way to switch your mortgage over to a new lender better suited for your current needs.
This blog will cover everything you need to know about switching your mortgage. Keep reading to learn about:
- What a switch/transfer is
- The reasons to switch lenders
- What you need to consider when making a switch/transfer
- When should you start the process
- What you'll need to get started
Let's dive in!
What is a mortgage switch/transfer?
The name says it all. A switch/transfer is when you move your current mortgage balance and remaining amortization (the transfer) from one lender to another (the switch).
What it's not?
Now that you know what a switch/transfer is, let's talk about what it is not.
A switch/transfer is not a:
Refinance - Unlike a refinance, you cannot change the amortization or the mortgage amount with a switch/transfer.
Port - The transfer of your current mortgage from your old home to the new one that you are purchasing.
Assumable mortgage - With an assumable mortgage, the terms and outstanding balance of the mortgage are transferred from the current owner to a buyer.
Why switch to a new lender? (When you should switch)
Using a switch/transfer to change lenders is a valuable tool that can provide you with a wide range of benefits. Let's take a look at what they are:
To take advantage of lower interest rates - Mortgage loans are typically quite large; with loans this size, even a slightly lower interest rate can mean thousands of dollars in savings over the mortgage term.
To access better prepayment privileges - Improved prepayment privileges can mean significant savings as they will allow you to put extra funds (in addition to your regularly scheduled payments) toward the principal of your mortgage. This will enable you to pay off your mortgage faster and save on interest payments without being charged costly prepayment penalties.
To obtain better terms - The terms of a mortgage contract will vary depending on the lender. Here are some examples of mortgage terms you need to take into account when deciding on a switch/transfer:
- Porting options (the ability to move your current mortgage to a new home)
- Penalties you will pay to break your contract early
- Fixed or variable rate
- Bundled or not
To get better service - With such a substantial investment, you deserve the best possible service. A switch/transfer allows you to move your mortgage to a different lender if you're not happy with the service you're receiving.
What to consider before switching
Are you thinking about switching mortgage companies? You'll want to consider the following.
What happens to the amortization?
As mentioned earlier, with a mortgage switch/transfer, the amortization rate will remain the same when you transfer your mortgage to a new lender. So, if you're 5 years into a 25-year mortgage, then the transfer would be for the remaining 20 years. However, depending on the lender, you may be able to restore the amortization schedule to the original 25-year period.
Is staying with your current lender a better option?
Even if, at first glance, it looks like making a mortgage transfer to another bank or lender is a good option, that may not always be the case. It's important to look into it further to determine if it really is the best choice for you. Here are the factors you should take into account:
The interest rate - First and foremost, you'll want to compare interest rates. Even if a different lender offers better terms, prepayment options, and a lower IRD penalty, making the switch may not be worth it if they have a higher rate.
The penalty to break the contract early - Before deciding whether or not to transfer, it's essential to determine if you think there's a possibility that you will break your mortgage before the term is up. If so, the penalty may make the cost of switching mortgage lenders outweigh any savings you will receive with a lower interest rate.
Prepayment options - Planning on saving on interest costs by putting extra funds toward your mortgage in addition to your regularly scheduled payments? If so, then you will want to compare prepayment options. If the new lender's options are not up to snuff, you may want to consider staying with your current lender, even if they offer lower interest rates.
Will the new lender cover the costs of switching?
So, will the lender cover the cost associated with the switch/transfer? For example, additional costs like:
- A new appraisal
- Temporary renewal costs
- Legal/Title fees
- Assignment fees
- Discharge fees
The answer to this question will differ depending on the lender. Many lenders will waive or cover some or all of the costs as an incentive to switch to them. The best way to ensure you're choosing the right lender and understand what fees they will or won't cover is to work with a mortgage broker. They will use their experience and expertise to help you determine the best path forward and guide you through the process.
How a mortgage broker can help
If you're considering switching mortgage companies, then you should enlist the help of a Pineapple mortgage broker. They will use their experience and expertise to help you determine the best path forward and guide you through the process.
Here's what a Pineapple mortgage broker will help you determine:
- Is the mortgage insured? If so, the default insurance will need to be transferred to your mortgage with the new lender.
- Does the original mortgage commitment contain a bona fide sales clause? If so, what are your options?
- What are the best rates today? A broker will help you find that out and match you with a lender offering a great rate and the terms that are best suited for you.
- Will there be a penalty involved with switching lenders? If so, does the new, lower rate outweigh the cost of the penalty?
- What costs (if any) will the new lender cover when it comes to fees?
- Do you have a LOC/HELOC with your current lender that you will need to close?
- Do you need to sign a temporary renewal for an open term with your existing lender until the new loan is put in place?
- Is refinancing a better option?
When should you start the switch/transfer process?
Moving your mortgage to a new lender doesn't happen overnight. The process of switching lenders takes time and should ideally start nine months out from the effective date. This will give your mortgage broker plenty of time to review your current mortgage contract and determine if there are options better suited for your needs with another lender.
Then, if the determination is made that switching your mortgage to a different lender is the right option, you need enough time to complete the switch/transfer. Depending on the lender, you may be required to obtain an appraisal for your home that can take 6-8 weeks to complete, and even if one isn't required, it will likely take at least 4 weeks to submit all the required documents on time.
What you'll need to start switch/transfer process
Once you've decided that switching your mortgage to a new lender is your best option, your next step is to complete the transfer. Our brokers can help make this process simple and hassle-free! Here are some of the documents you'll need to organize to complete the process.
- Your property tax statement
- Fire/Insurance policy
- Insurer Certificate Number
- An appraisal and the invoice (if requested by the lender) to ensure that the value has not decreased since the purchase
- Void cheque or PAP
How Pineapple Can Help
At Pineapple, we know the lender you start your mortgage with won't always remain your best option throughout the duration of your loan. Feel like this might be the case for you? That's okay, our brokers have a deep understanding of what is going on in the market and can provide you with a complete needs assessment to determine if you're best staying where you are or if a switch/transfer to move your mortgage to a new lender is the better option.
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