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Switching Your Mortgage Lender: What You Need To Know

Switching Your Mortgage Lender: What You Need To Know

Switching mortgage lenders

Switching lenders used to be an expensive and complicated option when you refinanced or renewed your mortgage. If you are approaching your mortgage renewal, it may seem convenient to stick with your current lender. However, this could be the perfect time to explore improved mortgage rates and loan terms with a different provider. Recent regulatory changes have streamlined the process, making it easier than ever to switch lenders by eliminating the mortgage stress test in most situations. 

Transitioning your mortgage from one lender to another really offers the chance to secure better terms, a reduced interest rate, or enhanced repayment options to help balance or increase your monthly cash flow. Although you can adjust your mortgage type or term while sticking with your current lender, you may be missing out on savings over time and it doesn’t take long to compare options when you work with an experienced mortgage broker, like myself. With 15 years of experience helping homeowners in the Barrie area secure the mortgage they need, while also helping them secure the best renewal terms and options when they come up, trust me when I say even half a percent makes a big difference in the overall amount you pay for your home throughout the duration of your mortgage. And, when you have a family, and kids going to college, every penny counts when it comes to your budget.

Regardless of your choice, it’s important to carefully consider the potential costs, advantages, and potential drawbacks involved so that when the time comes to renew or refinance your mortgage you know you’ll have made a sound decision. To help you figure out what matters in your mortgage agreements and options I’ve outlined a few things below, you should be thinking about so that you can confidently decide whether switching is the right move for you.

Why Switch Your Lender?

There are several reasons to consider a new lender if you’re renewing or refinancing your mortgage loan such as:

  • Changing your rate type: You may wish to switch between rate types, such as transitioning from a variable-rate mortgage to a fixed rate, or vice versa.
  • Lower interest rates: Transitioning to a different lender or bank could potentially grant you access to lower interest rates or a more tailored level of service.
  • Changing the length of your term: Shortening your mortgage term could lead to reduced overall interest costs while extending the term might make monthly payments more manageable. 
  • Extending your amortization period when refinancing. If you’re lengthening your amortization, you may make lower monthly payments but pay more interest over time.
  • Getting a better prepayment option. You may get the opportunity to pay your loan earlier without any additional interest costs when you switch lenders.

Opting to switch mortgages at the end of your agreement term can help you sidestep expensive prepayment fees. However, it’s worth noting that switching can occur at any point, even mid-term. While there’s no legal mandate to remain with the same lender for the entire term, switching mid-term involves breaking a binding contract, which means you’ll very likely have to pay a penalty fee.

Mortgage discharge fees can also reach up to $400, and prepayment penalties may equate to three months’ worth of interest payments on the outstanding balance or the interest rate differential—reflecting the variance between your current interest rate and the rate offered by the new financial institution. Penalty interests and other fees vary from mortgage to mortgage so be sure to investigate what you will potentially have to pay if you do decide to break your mortgage so that you aren’t blindsided by additional costs. The penalty fees should make sense financially as well so be sure to consider the true benefits before moving ahead with a refinance.

What to Consider Before Switching Mortgage Lenders

If you’ve decided to look into changing your mortgage lender, you need to do your research. Two things I want to advise you about are these:

Be smart. Use a mortgage broker

There are many advantages to using a mortgage broker if you’re thinking of changing lenders. Mortgage brokers have connections with many lenders, giving you more choices and the chance for better mortgage terms or rates. They can offer unbiased advice on whether switching mortgage lenders is right for you, as they’re not tied to any specific financial institution. Not only that, but their services are free so you really have nothing to lose and everything to gain from their advice.

Make sure you will actually save money

The initial expenses of switching mortgages might include discharge fees, appraisal fees, and legal fees along with penalty fees. Additionally, there could be an assignment fee, potentially amounting to $500, charged for transitioning from one lender to another.

In the long run, it’s important to factor in the interest savings throughout your loan term if you switch to a better rate in the decision making stages. To determine if changing lenders is truly worthwhile, you need to meticulously compare the overall costs against long-term savings. Often times the cost of all the fees you pay eat up the savings you were hoping for however, in some cases, refinancing is the only option which is why working with a mortgage broker is crucial to save you as much money as possible when you do have to switch lenders. 

What Are The Steps to Take When Switching Your Mortgage To A New Lender?

Once you’ve decided to consider switching lenders for your mortgage loan, there are specific steps you’ll need to follow. These include: 

  1. Research: Compare current mortgage rates and APRs from various lenders to identify those offering the lowest rates, fees, and most favourable repayment terms. Some lenders may even offer rebates on discharge or assignment fees as an incentive. If you’re using a mortgage broker, they will do this comparison for you.
  2. Qualification: Like when you initially bought your house, potential lenders will assess your ability to repay the new mortgage. To increase approval odds, maintain a stable income, a solid credit score, and meet desired debt service ratios.
  3. Documentation: Gather required documents such as property tax bills, pay stubs, and your current mortgage agreement, as most lenders will request them.
  4. Application Submission: Once you, or your mortgage broker, have pinpointed potential mortgage lenders, you will submit a formal application.
  5. Obtain Payout Statement: Your current lender must furnish a payout statement detailing your remaining mortgage balance and other relevant information.
  6. Settle Fees: Before finalizing the switch, clear any outstanding fees on your mortgage.

How to Get The Best Mortgage Rates When Switching Lenders

When comparing rates, be sure to consider the APR, or annual percentage rate. An APR is the amount you pay per year to borrow money and includes the total interest, plus any additional fees, closing costs and required insurance. So, it more accurately reflects the cost of borrowing than interest alone. Remember, posted rates are often not the lowest available; special or discounted rates can be negotiated through the pre-approval process so be sure to ask your mortgage broker what incentives you could take advantage of. 

You also need to consider loan terms, amortization, and repayment options that work for your personal financial situation. Mortgage brokers may have access to more attractive rates compared to traditional banks and can work with you to figure out the budget that will suit your needs.

Talk To Me Before You Switch Lenders, I Can Find You The Best Options & Help You Make The Best Financial Decision For You & Your Family

When you’re renewing or refinancing your mortgage, looking at the big picture is key. Switching lenders may be the best option but we can sit down together and crunch the numbers to make sure you’re making the right decision. With my assistance, you can rest assured that you will get the best mortgage rates and options for your personal financial situation. Reach out to me today at 705-315-0516, or book a consultation with me to get started. Together we’ll find the perfect lender for you and secure the new mortgage you need.

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