There is potential for huge savings for those who are adaptive and proactive in managing their mortgage. I see a lot of homeowners relying on their mortgage advisers or just keeping their head down and paying their way out of their mountain of debt. There are two significant reasons to move mortgage providers: getting a better rate or better conditions. However, the pros need to outweigh the cons, and you need to be sure that those faraway hills are, in fact, greener.
Why Should I Switch Providers?
Most people often look to changing their mortgage during times of financial struggles. However, it is actually when our fortunes change for the better that makes for an ideal opportunity to look into switching your mortgage providers.
If your means of income has increased of late, you might be hoping to pay off your mortgage sooner and save yourself a few years of interest. You may be able to find a provider that has more favorable prepayment options. Lenders usually allow you to increase your monthly payments annually, but they differ by the amount these rates are permitted to rise.
Are you “Breaking” or “Transferring” Your Mortgage?
There are two options for you when you are thinking about switching your mortgage providers. One is called “breaking” your mortgage. This is when you leave your mortgage while you are still within your contract. If you are breaking your mortgage within term, then you must be prepared to pay a switching penalty, and if you have a collateral mortgage, these fees are often substantial. Your next option is to wait until your contract ends and you can then “transfer” your mortgage which saves you having to pay the penalties.
A major bonus to breaking your contract before the end of its term is to beat the interest rate hikes predicted in 2018. Similar to 2017, we are expecting a few jumps in interest rates over the next few months. I’d suggest that if your mortgage contract is to be terminated in the upcoming months that it’s time to start looking around.
How to Get the Ball Rolling?
First things first, ring your current lenders and figure out what the price would be to switch your mortgage at present and what the terms would be to do so. Make sure you gather all fees as there will be a few. You’ll also have to factor in the legal costs that are involved in moving your mortgage. Now you have a concrete base to begin your comparisons and an idea of the procedure for transferring. Be prepared for different application criteria. Your mortgage will need to be reviewed afresh and stress tests are more stringent than even last year as I’ll explain now.
The Process of Changing
There are two options: either go about the research yourself or get in touch with a local mortgage broker. A good mortgage broker is worth their fees and will have extensive knowledge of how to save on your repayments and also help with your application process. This may also be useful for the more stringent stress tests rolled out by the CMHC as mortgage application that was once approved are now rejected by this risk management tool that lenders are obligated to use.
It is pointless for me to list out the application requirements as they will differ from lender to lender but you will definitely need proof of home ownership, a copy of your latest mortgage renewal statement and evidence that you have taken out property insurance. Also, there will be requirements to prove your source of income.
The Payout Statement
This is what you will need to acquire from your current lenders once you are successful in your application and are happy with moving to a new institution. This statement includes all of the necessary details to be transferred to your new lenders. This includes outstanding mortgage payments.
When to start shopping?
In general, it’s best to get your skates on at around three months prior to the contract termination date. You will get a renewal letter a long time after this as your current providers certainly won’t be giving you a big heads up to start shopping around.
Three months gives you ample time to research the market, find an option that best suits your needs and get you the best value for your terms. It also prevents you from making any late minute, rash decisions that might leave you regretting changing lenders in the first place. If you find a competitive rate and lock in now for a fixed term, then you will be saving yourself a lot of money over the next few years.
Why you should stay with your current providers?
It is always worthwhile letting your lenders know that you are shopping around. Many Canadians are a little too naive in the realms of customer loyalty when it comes to banking. There is always room to renegotiate. Once you have found a lender that you feel is reliable, credible and offering a competitive rate with good terms, then don’t be shy about telling your bank or mortgage broker.
Ask if they could provide you with a better rate to prevent you leaving their institution. They can often knock a percent off the interest rate, and it limits a lot of hassle on your side. It also means you won’t have to pay any penalties, legal or administrative fees, so it is a win-win situation. Remember that loyalty works both ways and if they don’t give you a reason to stay then don’t look back.
Another option your current providers might supply you with is what’s known as a blend and extend. The basic premise of this contract is that your new preferable rate is integrated immediately and lowers your current rate.
So there you have it, a crash course in transferring mortgages. There are a lot of options available, and it can often be confusing to know where to start. If you’re wondering which mortgage to go for, have a look at one of my recent articles here. I’ll talk you through the most popular mortgage option amongst Canadians this past year: the five-year fixed term.