There are a number of reasons you might want to consider switching mortgage lenders at renewal. Perhaps you want to shop around for lower interest rates, or maybe you’re dissatisfied with your current provider. You may also want to secure different terms for your mortgage, like being able to pay it off early for no additional fee.
Whatever your reasons for switching, you should try to understand the pros and cons of leaving your current lender before you take the plunge. If you decide in the end that it’s the best choice for you, you can use this post to learn more about how to make the process of switching as seamless as possible.
Why would you consider switching mortgage lenders?
Switching mortgage lenders may seem like a hassle, so why bother? There are three main reasons why someone might consider the switch:
Lower mortgage interest rates. Interest is likely the biggest cost you’ll incur in relation to your mortgage. If you can get a lower rate with another lender, the switch could potentially save you thousands of dollars in interest costs.
More favourable terms and conditions. The quantitative aspect of a mortgage is one thing, but the qualitative aspects are important too. Another lender could provide you with better terms and conditions compared to what you have now. One of the most common restrictions in mortgage conditions is prepayment options. Many lenders do not allow you to pay a portion or all of your mortgage early unless you pay a hefty fine to break the mortgage contract. By working with a new lender, you may be able to avoid prepayment penalties or other unfavourable terms and conditions.
You don’t like your lender. Unfortunately, not all lenders are easy to work with. If you’ve had a bad experience with your current lender, you might want to switch to another creditor you get along with.
Can I renew my mortgage with a new lender?
When it comes time to renew your mortgage, you’ll have the option to either switch your mortgage lender or stay with the current lender. Once your term is up, you’ll usually receive a renewal statement from your current lender. This will outline the conditions for your upcoming contract, including how much you’ll have to pay each month and how much your interest will be.
If you don’t like the conditions outlined in your renewal statement, you may want to consider switching lenders or negotiating new rates with your current lender. If you decide to switch, you’ll typically want to begin comparing rates from other providers to find the best deal. Once you settle on a lender, you’ll need to apply with them and notify your current lender of the switch.
Will I need to pay to switch mortgage lenders?
A mortgage is a contract, which means there will likely be costs associated with ending it prematurely. Before making any decisions, ask your current lender for a list of all the costs associated with leaving your mortgage. In addition, ask lenders you’re considering working with for a list of fees associated with opening a new mortgage. Below is a list of common costs associated with switching mortgage lenders at renewal (or any other time):
Interest penalty. Usually, an interest penalty is three months’ worth of interest payments.
Interest rate differential (IRD). This is a type of interest penalty. It is calculated as the difference between the interest rate on your current mortgage and your lender’s current rate for the amount of time left in the term. These fees are known to be notoriously expensive.
Appraisal. A new lender will request the current market value of your property. This means there is an appraisal cost to consider. Ask the new lender to cover the assessment cost.
Legal fees. Mortgages require legal paperwork to be complete. The lender typically hires a lawyer and charges the cost back to you.
Discharge fee. This is the fee for the lender to remove their lien against your property. Property tax fees. Some lenders may charge an administration fee to process payment of your property taxes through them. The easiest way to avoid this fee is to pay your property taxes on your own.
A new lender is motivated to help you make the switch from your current lender, so they might offer incentives to switch. A common example of this is offering to finance the cost of switching, mainly interest penalties. While this is helpful, be mindful — by choosing to finance the cost of switching, you’re borrowing more and paying more interest.
How to switch mortgage lenders
If you’ve decided to switch lenders, there are a couple of steps you’ll need to take to get started:
Compare rates. You’ll have to find a lender that can offer you better rates than what your current lender is offering. To do this, you can request quotes from providers individually or you can contact a mortgage broker who will do the heavy lifting for you.
Submit an application. Once you’ve found a lender that’s willing to give you a mortgage, you’ll need to submit a formal mortgage application. You’ll usually need to do a credit check as part of this process so that the new lender can assess your creditworthiness.
Negotiate the details. You’ll want to negotiate the terms of your mortgage contract in the beginning. This can include specifying what interest you’ll pay, how often you make your monthly payments and whether or not you can pay your mortgage out early.
Provide a payout statement. Once you’re approved by your new lender, you’ll need to request a payout letter from your old lender. This document will state how much you owe on your mortgage as of your renewal date.
Pay your fees. The last step in switching your mortgage over is to meet with your new lender to pay any fees that might be due. Your new lender will then pay out your mortgage with your old lender and issue you a new mortgage.
What will my new lender need to assess my application?
Your new lender will need certain documents to be able to assess your creditworthiness. These can include:
Your mortgage renewal letter. You’ll likely need to supply the mortgage renewal letter you received from your old lender.
Proof you own your own home. You’ll usually be required to submit proof of home ownership, like a property tax bill.
Confirmation of income. You may need to submit documents like pay stubs or bank statements to prove your income.
Proof of insurance. You might have to submit proof of insurance to show that you’re protected in case you are unable to pay your mortgage.
Can my mortgage renewal be denied?
Your mortgage renewal can be denied by your current lender, as well as by a new lender if you decide to switch. The main reason you could be denied is if you’ve missed payments on your current mortgage, or your credit rating has gone down substantially. You might also struggle to renew your mortgage if you file for bankruptcy or a consumer proposal.
You might also have trouble renewing your mortgage if you don’t have consistent employment or a steady form of income coming in. That said, if your credit score is still in good standing, you shouldn’t have any issues getting a new loan at favourable rates.
If you want to switch to a new lender, you can begin by comparing rates and filling out a new mortgage application. Find out what you’ll need to do to switch your lender and learn how you can lock in the best deal on your mortgage renewal.
Frequently asked questions
Your mortgage will typically be up for renewal every five years or whenever your terms ends. At that point, you’ll be issued with a renewal statement from your current lender. Then, you’ll need to figure out if you want to accept the rates on offer or if you would prefer to switch lenders.
Yes. One of the best ways to compare rates for your new term is to go through a mortgage broker. They will source out a list of lenders willing to work with you, and give you a curated list of rates that you’ll be eligible to qualify for so that you can pick the best option for you.
That depends on what makes the most sense for you. If you’re on a set budget and want to know exactly how much you’ll have to pay in interest each month, you may want to go with fixed rates. If you have a bit more wiggle room in your budget, you could end up paying less with variable interest rates.
A mortgage renewal involves renegotiating the rates and terms for your current mortgage. Mortgage refinancing involves taking out a second mortgage with better rates and terms to pay off the first.
Veronica Ott was a writer at Finder. She's written for numerous finance and business websites including Loans Canada, Borrowell and Fresh Start Finance. She previously worked as a professional chartered accountant in the private equity and advertising industries.
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