Many Canadian homeowners will find themselves at a crossroads when their mortgage term approaches renewal.
With steady interest rate hikes over the past two years, most Canadian homeowners will find themselves with a much higher interest rate than the one they have now. With a staggering 4.3 million Canadian mortgages up for renewal in the next three years, the prospect of exploring alternative options becomes increasingly relevant and it’s likely an option that most Canadian homeowners will explore, as there is a potential to save substantially by choosing the right mortgage to weather the interest rate storm.
Can I switch mortgage lenders?
Before we dive into the intricacies of switching lenders, it's crucial to grasp why homeowners consider this option. Often, it boils down to securing better terms, lower interest rates, or accessing additional financial features. With market conditions and personal financial situations evolving, switching lenders can be a strategic move to optimize one's mortgage for long-term financial health.
When is a good time to switch mortgage lenders?
Most Canadian mortgages are locked into a term between 1-5 years. This is the term that governs your interest rate and other conditions such as penalties and prepayment. Usually within 90 days of your mortgage term expiring, your lender will reach out to you with a renewal offer, outlining new or revised terms, as well as some optionality for different terms or products. Depending on your mortgage product, you will have much more flexibility to switch mortgage lenders at renewal time as it typically means avoiding typical penalties and additional fees when potentially breaking your mortgage in the middle of your current term.
What are reasons to switch mortgage lenders?
There can be several factors Influencing your decision to switch mortgage lenders.
Interest Rates and Market Trends
Keep a keen eye on current interest rates and market trends. If rates have increased since you secured your initial mortgage, switching lenders might offer the opportunity to lock in a lower rate, leading to substantial savings over the life of the loan.
Financial Goals and Circumstances
Evaluate your current financial goals and circumstances. Whether it's paying off the mortgage sooner, accessing home equity, or consolidating debt, understanding your objectives will guide your decision-making process.
New lender may have more flexibility
This one is a huge reason to shop your mortgage around. Banks and lenders typically spend a significant cost to acquire new customers. However, once you are a customer, most lenders feel that they have a “lock” on you and therefore the offers you get may not be as good as the ones that are offered to new customers. To boil it down, your offer to renew with your existing lender may not be as good as a promo that another lender who may be vying for your business can offer.
Do I need to re-qualify for my mortgage if I switch mortgage lenders?
The short answer is that it depends on your circumstances. Many Canadians forego switching lenders for this very reason. They are afraid they may not qualify with a new mortgage lender, or that switching is a costly and time-consuming process.
While there may be a need to re-qualify and submit documentation such as proof of income, in some cases, switching your mortgage lender can result in tens of thousands in savings. If you boil it down, it may be worth the time investment and effort.
Steps to Switching a Mortgage Lender
1. Evaluate Your Current Mortgage
Begin by reviewing the terms of your existing mortgage and renewal offer. Take note of the interest rate, remaining term, and any penalties associated with breaking the current mortgage agreement. This information serves as the baseline for comparing offers from potential new lenders.
2. Consider engaging a mortgage professional
This is a great opportunity for you to consult with a mortgage broker. A mortgage broker typically works with multiple lenders and can help analyze your situation while offering guidance and several product options that may fit your situation. Contrary to popular belief, it doesn’t cost you anything to use a mortgage broker. Most mortgage brokers are paid a commission from the lender, while reaping the benefits and time savings of having an expert on your side, guiding you through the process.
3. Assess New Offers
Whether you leverage a mortgage broker or go directly to lenders yourself, you can request quotes from multiple lenders to compare their offerings. Pay close attention to interest rates, terms, fees, and any additional features that align with your financial goals. Factor in potential savings and costs associated with the switch.
4. Calculate the Costs of Switching
While securing a lower interest rate is enticing, it's crucial to calculate the costs associated with switching. Consider penalties for breaking your current mortgage, legal fees, and any other charges that may apply. Ensure that the potential savings outweigh the expenses.
5. Negotiate with Current Lender
Just because your lender made you a renewal offer, it doesn’t mean you cannot negotiate it. Approach your current lender.. They may be willing to negotiate and match or improve upon the terms offered by other lenders. Loyal customers often have some leverage in these negotiations.
6. Legal Process and Closing
You will need to engage legal professionals to facilitate the transfer of the mortgage. They will ensure that all legal requirements are met, including the discharge of the existing mortgage and the registration of the new one. This process may involve additional costs, so it's important to budget accordingly. This is where our team here at Deeded can help you finalize the final steps of switching your mortgage and do so seamlessly.
The Bottom Line
As 4.3 million Canadian mortgages come up for renewal in the next three years, homeowners have a unique opportunity to reassess and optimize their mortgage arrangements. Switching lenders can be a strategic move to secure better terms, lower interest rates, and align the mortgage with evolving financial goals. By carefully evaluating the current mortgage, researching alternative lenders, and navigating the switch with due diligence, homeowners can position themselves for long-term financial success in the dynamic Canadian housing market.
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