Switching Your Mortgage — It’s Easier Than You Think And You Do Not Have To Wait
There is potential for huge savings for those who are adaptive and proactive in managing their mortgage. You may think the thought of “switching or transferring” your mortgage is reserved for the end of your term, but in fact you can do it anytime!
Most people often look to changing their mortgage during times of financial struggles. However, it is actually when our fortunes change for the better or when you’re simply in a good-place that makes for an ideal opportunity to look into switching your mortgage providers. This may not always be the case when your existing mortgage renews.
You can leave your mortgage while you are still within your contract. If you began your mortgage while rates were higher (such as in 2018), then you may want to consider a switch into a lower rate.
If you are breaking your mortgage within term, then you may be charged a prepayment penalty by your current lender … but 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. Your lender may call the prepayment penalty a prepayment charge or breakage cost.
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.
Review your mortgage contract to find out exactly how your lender will calculate your prepayment penalty.
Depending on the rate you’re leaving, incurring the penalty often still saves you money verses continuing many more months or years at a higher rate of interest. And, a new lender will also pay your legal costs to switch, so there is no cost to you in the end.
I’ve ran the “switch” scenario for several clients who locked-in in 2018, most will save if they move to a current fixed rate which is 60 bps less on average. The interest savings over a term is in the thousands for most scenarios.
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 having to pay the penalties. And, a new lender will also pay your legal costs to do this, so there is no cost to you in the end.
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.
If you find a competitive rate and lock in now for a new fixed term, then you may be saving yourself a lot of money over the next few years
Candace Perko
Mortgage Broker
Countryside Financial
www.countrysidefinancial.ca
