Choosing a Mortgage Provider Doesn't Need to Be a Lifetime Commitment
Written by Preet Banerjee

Friday, March 9th, 2018

For most people, a mortgage is one of the biggest commitments they'll make in their lifetime. But you don't need to commit for life with one mortgage provider. Monogamy isn't really a thing when it comes to borrowing money from a lender.

Why Consider Changing Providers? (Potential Benefits)

What might seem like small differences in interest rates or repayment options can add up to large differences to your finances over the lifetime of your mortgage, to the tune of tens of thousands of dollars, or more. Sometimes the savings will be due to a lower interest rate, while other times it might be due to more favourable prepayment options.

When the end of your current mortgage term is approaching, you should get a renewal notice. Don't assume that you need to renew for the same term or with the same provider. Shopping around could lead to thousands of dollars in saving.

For example, someone with $400,000 remaining on their mortgage balance at the end of their first five year term on an original 25 year mortgage could save over $4,000 on the next five year term by finding a mortgage with a 3.25% interest rate instead of a 3.50% interest rate.

Potential Consequences and Extra Costs

When switching lenders, they'll have you fill out an application. There may be some costs involved, like a discharge fee from your old lender, an appraisal fee for the new lender, legal costs, and more. If you have what's known as a "collateral" mortgage, the process is more complex, and the costs of switching will be slightly higher than for non-collateral mortgages.

It's important to check and see if the new potential lender may cover some or all of these costs. Regardless, you'll want to factor in the costs you're responsible for against the savings with the terms offered.

If You Want to Switch Lenders During a Term of Your Mortgage

For a closed mortgage, that means you're breaking your current mortgage.

There will be a financial penalty for doing so, and the size of the penalty can be large enough to negate any interest savings. To see some examples of penalties for breaking variable rate or fixed rate mortgages, watch this video.

It's Important to Shop Around

The interest rate is not the only thing you'll need to consider when shopping around for the best deal. Some mortgages with the lowest rates in the market may not allow you to accelerate your payments as much as mortgages with slightly higher interest rates. If you think you might be in a position to pay down your mortgage balance faster than the mortgage schedule, then you'll want to pay attention to the prepayment options offered.

Many people will turn to a mortgage broker for help, since they arrange mortgages, refinancings and switches for a living. Other people may prefer to navigate the mortgage marketplace themselves. It's important to shop around periodically during the life of your mortgage. Because it's such a long-term commitment, there may be many opportunities to save money by switching lenders (or renegotiating with your existing lender).


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