Switching Lenders if Necessary
There is potential for security and/or savings for those who are proactive in managing their mortgage. You may think renewing or transferring your mortgage is reserved for the end of your term – at your maturity date or term-end is a great time – but you can do it anytime.
Furthermore, most borrowers often look to change their mortgage during times of financial struggles. However, it is actually when you’re in a good-place that is the ideal time to consider renewing or switching your mortgage.
In times of increasing rates and/or financial uncertainly, consider taking charge now!
Fixed rates are predicted to keep increasing. If you have a maturity date in the next 120 days you can lock-in now for the term end. If your maturity date exceeds 120 days (but not long enough to ride-out the possible increases over the next few years), switching soon and locking in a new 5-yr may provide protection against further increases.
Option 1. You can leave your mortgage at your term end/maturity date. Your mortgage contract has ended and you’re free to stay, switch to a new lender, or even pay it off if you have the means.
Option 2. You can renew or switch your mortgage while you are still within your contract. If you are breaking your mortgage within term you may be charged a prepayment penalty by your current lender. That penalty (*up to $3000) may be rolled into the new mortgage. A prepayment penalty is a fee that your lender may charge if you break your mortgage contract.
The way your prepayment penalty is calculated varies from lender to lender. The prepayment penalty will usually be the higher of:
- An amount equal to 3 months’ interest on what you still owe
- The interest rate differential (IRD). The interest rate differential is the difference between the interest rate on your current mortgage term and today’s interest rate for a term that is the same length as the remaining time left on your current term depending on the rate you’re leaving, the new rate today, and/ or the potential new rate imposed upon maturity, incurring the penalty now may still save you money in the long run. Or, if you wait until your mortgage term ends, everything can be redone and you can easily transfer your mortgage to any lender which saves you paying any penalty. *A new lender under a “switch” program will also pay your legal costs to switch, so there is no cost to you.
Application requirements differ from lender to lender but you will need a copy of your latest mortgage statement, proof of homeowners insurance, plus standard income verification and credit worthiness. OAC.
* Lenders allow up to $3000 under a “switch” program whereby they pick up all transaction costs (admin, legal, etc); a “refinance” program allows any penalty amount to be included without limit, but lender may not pick up the transaction costs. OAC.
Candace Perko, Mortgage Broker
