"Early Renewal" Can Lock You Back In With Your Bank But Lock You Out From Better Rates Elsewhere.
You don't have to stay with the same lender when your mortgage contract renews. Many different mortgage lenders are always competing for your business.
Your bank will send you a renewal agreement within six months of your mortgage maturity date.
Here's A Good Reason Why You Shouldn't Necessarily Renew Your Mortgage Early
Mortgage interest rates constantly fluctuate as the economy changes. Most mortgage lenders will NOT note the most competitive interest rates on their renewal agreement.
The "early renewal" document hinges upon the bank's belief that borrowers feel they have been awarded a privilege of less legwork six months earlier. In reality, all lenders know that borrowers will be faced with more choices and presumably a better rate as their maturity date approaches, so locking borrowers back in earlier means locking them out of a competitive market where they will likely find a better deal.
Before you sign back, you should verify the mortgage rates and terms other lenders are offering to see if you can save yourself money over the next cycle of your mortgage. Take some time to do some research to ensure you do get the best deal and realize it may not be with your existing lender.
The majority of Canadians make the mistake of signing back their mortgage renewal agreement to their bank instead of taking the time to shop around. And, unfortunately, they often end up paying more than have to for their mortgage loan.
Why You Should Switch Mortgage Providers
There are usually two main reasons borrowers switch away from their current mortgage to another lender:
As long as you are not requesting more money, you can switch over your current mortgage to another lender and avoid paying a prepayment penalty. Getting a better rate on your mortgage can make your monthly payment lower and shorten your amortization period, which is the time remaining before you're mortgage-free.
For example, by switching over to a mortgage lender that offers an interest rate that is 20 basis points (.20%) less, you can save up to $5,000 in interest over the next two years. Also, if you decide to keep your monthly payments the same, you will pay down the mortgage principal much quicker since you will be making prepayments.
Sometimes, it makes sense for a borrower to exit out of their current mortgage contract and "switch" over to another lender if the terms are more favourable. For example, some banks only allow a 10% prepayment privilege, which means a borrower cannot repay more than 10% of the original mortgage balance within each calendar year. Other lenders offer up to 25% prepayment privilege, which gives borrowers more opportunities to pay off their mortgage faster without incurring penalties.
How To Switch Lenders
The first step you should take to switch mortgage lenders is to find a lender who is currently offering a better rate. You can search through our office, or you can search online.
Once you've found a lender who is willing to offer you a better rate, you must fill out a mortgage application.
You will require the following documentation:
Upon switching your mortgage, your old lender will be paid out, and only the mortgage amount that is currently outstanding on your existing mortgage will be transferred over into the new mortgage.
Are there costs associated with switching?
Usually, there are costs associated with switching; however, your new lender will likely cover these costs. They are approximately $850 in legal fees and $250 in discharge fees.
An appraisal may also be required, the cost of which would get covered in our "switch program."
Sometimes, switching can involve a collateral mortgage, which means your existing lender registered your mortgage differently. We can still facilitate collateral switches; however, please contact our office for more information.
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By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929