If you’re a homeowner in Canada, you may come across the term “mortgage switch” or “mortgage transfer” when exploring your mortgage options. But what exactly is a mortgage switch, and when should you consider it? Mortgage switches provide homeowners in Canada with the opportunity to optimize their mortgage terms, take advantage of lower interest rates, and access improved features. This guide will walk you through the key aspects of mortgage switches, highlighting their advantages and considerations.
What is a Mortgage Switch?
A mortgage switch or transfer involves moving your current mortgage balance and remaining amortization from one lender to another. It’s the process of changing your mortgage provider while maintaining the same mortgage amount and amortization period. It’s important to understand that a mortgage switch is different from a refinance, port or assumable mortgage.
Key Benefits of Mortgage Switches
- Lower Interest Rates: By taking advantage of lower interest rates, you can save thousands of dollars over the term of your mortgage.
- Better Prepayment Privileges: Improved prepayment options allow you to make extra payments towards your mortgage principal, helping you pay off your mortgage faster and reduce interest costs.
- Enhanced Service: If you’re dissatisfied with the service from your current lender, a mortgage switch offers an opportunity to move to a different lender and receive better customer service.
- Home Equity Access: Some homeowners opt for a mortgage switch to access their home equity through a home equity line of credit (HELOC) or a cash-out refinancing option.
- Improved Terms: Different lenders offer varying mortgage terms, including porting options, penalties for breaking your contract early, fixed or variable rates, and bundled options. Switching can provide access to better terms that align with your financial goals.
Factors to Consider
Before making a decision, there are essential factors to consider:
- Interest Rates: Compare interest rates offered by different lenders and evaluate the potential savings. Consider the impact of rate fluctuations, as variable rates can change over time.
- Mortgage Penalties: If you’re switching before your current mortgage term ends, be aware of any penalties or fees associated with breaking your existing mortgage agreement. Calculate whether the savings from the switch outweigh the penalty costs.
- Term Length: Decide on the desired length of your mortgage term. Shorter terms often come with lower interest rates, but they also mean more frequent renewals.
- Closing Costs: Consider the costs associated with the switch, such as appraisals, temporary renewal costs, legal/title fees, assignment fees, and discharge fees. Some lenders may cover some or all of these costs, so it’s essential to understand their policies.
The Switching Process
The mortgage switching process involves several steps, typically starting with the homeowner working with a Mortgage Broker. The application is initially submitted through the Mortgage Broker, who then forwards it to the lender. It is worth noting that certain lenders may not accept applications directly from clients. If homeowners have a particular lender in mind that they prefer or wish to use, they can discuss their choice with the Mortgage Broker. The Mortgage Broker can provide insights into the pros and cons of the selected lender, helping homeowners make an informed decision. The Mortgage Broker serves as an intermediary, facilitating the application process and ensuring that the necessary documentation and information are properly submitted to the lender. Afterwards, the lender reviews the application, assesses the homeowner’s financial profile, and evaluates their eligibility for the mortgage switch. Once the lender completes their evaluation, they communicate their decision to the Mortgage Broker. If approved, the homeowner can proceed with the switch by signing the necessary documents to finalize the process.