If your current mortgage no longer meets your needs, you may want to switch mortgage lenders. Homeowners often switch lenders to secure a lower interest rate or better terms and conditions.
Before making the switch, it’s important to calculate the costs associated with changing lenders to ensure it’s a good financial decision.
Key Article Points
- You can switch your mortgage at or before your mortgage renewal with your current lender or a different lender.
- The best time to switching your mortgage lender is at renewal, as you’ll avoid any penalty costs for breaking your mortgage early.
- Switching a mortgage lender is best when you can secure a lower interest rate or payment.
Can You Switch Mortgage Lenders?
Yes, it’s possible to switch mortgage lenders in Canada, however, it’s important to consider the benefits and drawbacks to determine if it’s the right financial move for you.
- Switching During Your Renewal Period. Generally, the best time to switch is when your mortgage is up for renewal. For many Canadian mortgage holders, this happens every five years. By switching at renewal, you can avoid many of the fees that come with breaking a mortgage contract early.
- Switching Before Your Renewal Period. If interest rates are low, you might choose to switch before your mortgage renewal. Securing a lower rate can reduce the amount you pay in interest over the course of your loan. It can also help to lower the cost of your monthly payments. But you’ll need to calculate if the savings outweigh the fees associated with breaking your mortgage contract.
How To Switch Mortgage Lenders
Switching to a new mortgage lender is similar to getting your original mortgage. It involves replacing your current mortgage with a new one (known as mortgage refinancing).
Here’s a step-by-step overview of the process:
Compare Mortgage Lenders
It’s a good idea to start comparing mortgage lenders around four to six months before your mortgage is up for renewal. This gives you time to do your research without feeling rushed. By getting a mortgage pre-approval, you can compare multiple lenders on interest rates and terms & conditions, including amortization options, prepayment privilege, and portability features.
If you want help deciding which lender is right for you, consider working with a mortgage broker.
Learn more: Mortgage Brokers: Should You Work With One?
Submit An Application
Once you’ve picked a lender, submit a formal mortgage application. The application requires a combination of personal, financial, employment, and credit information.
Get A Payout Statement
If your application is approved, your new lender will request a payout statement from your current lender. This document outlines how much you have remaining on your mortgage. Your new lender will use this information to open your new mortgage.
Pay Fees And Penalties
Depending on when you switch your mortgage, you may have to pay several fees. When you break your contract, you typically have to pay a prepayment penalty, which can cost thousands of dollars. The penalty is typically equal to three months’ interest or the interest rate differential (IRD), whichever is higher.
Learn more: Breaking A Canadian Mortgage Contract
Start Paying Your New Mortgage
Once all your fees are paid and the paperwork is signed, your mortgage is transferred to your new lender. Now, all that’s left to do is start making your new monthly payments.
Requirements To Switch Mortgage Lenders
To complete a formal mortgage application and switch lenders, the new lender will typically ask you to provide the following documentation.
- Verification of employment and income. This can include proof of income statements, tax information slips (e.g. T4), your notice of assessment, or your statement of income and deductions.
- Proof of property insurance. Ask your current lender to provide your certificate of insurance number. This shows your new lender that you’re properly insured.
- Valid identification. You’ll need to provide government-issued photo ID such as your driver’s license or passport.
- Current mortgage details. Your new lender will also want to see details on your current mortgage, including your mortgage account number and maturity date.
Do You Need To Do A Property Appraisal To Switch Lenders?
Whether you need to do a property appraisal will depend on the new lender’s requirements. Many lenders want an appraisal to know what your property is worth based on current market conditions.
Do You Need To Do A Stress Test To Switch Lenders?
No, you don’t always need to do a stress test to switch lenders. As of November 21, 2024, the Office of the Superintendent of Financial Institutions (OSFI), removed the mortgage stress test for homeowners who switch between one federally regulated lender to another.
Cost Of Switching Mortgage Lenders
There are several fees to consider when switching mortgage lenders, especially if you break your mortgage contract.
| Mortgage Discharge Fee | When you change lenders, the information on your property’s title needs to be updated and you have to add the new lender to your property’s title. Certain provinces and territories limit the maximum a lender can charge for discharge fees. Generally, you can expect to pay from $0 to $400. |
| Appraisal Fee | Your lender might require an appraisal to confirm the property value. Appraisal fees typically cost around$300 – $400. |
| Assignment Fee | The cost to transfer your mortgage from your current lender to the new lender. This fee can vary between lenders. |
Before switching lenders, ask the new lender if they’ll cover some of the fees to help with the cost. Many lenders have special deals and offers to get borrowers to switch over to them.
Be sure to check the terms and conditions of your mortgage contract to confirm the fees.
What To Look For When Switching Mortgage Lenders
Besides looking for a lower rate and more affordable payment options, if you’re considering a switch between mortgage lenders, ask about special benefits or offers to find the best deal.
- Limited-Time Offers. Ask lenders if they have any special offers for customers who switch their mortgage. For instance, some lenders offer limited-time cash back when you switch your mortgage from your current lender.
- Do They Cover Your Discharge Fee? Some lenders will also offer to cover certain fees or waive fees up to a certain amount when you switch. For instance, a lender might waive up to $1,500 in fees when you move your mortgage. Or the lender might offer cashback to help you cover the costs of switching.
- Prepayment Conditions. When switching lenders, be sure to consider their prepayment policy. Many lenders will allow prepayments of 10%-20% of your original mortgage amount each year. Flexible prepayment options can allow you to pay off your mortgage quicker, without penalty.
Good Reasons To Switch Mortgage Lenders
There are several scenarios that may prompt you to switch mortgage lenders, including:
To Secure A Lower Interest Rate
Securing a mortgage with a lower rate can help you save on interest over the course of your mortgage. It can also help to lower your monthly payments.
Learn more: Features You Want To See In Your Mortgage Contract
Switching From An Alternative Lender To A Bank
Alternative lenders tend to have more lenient loan requirements than big banks. While it’s easier to get a mortgage, it’s often more expensive. If your financial situation and credit score have improved, you may want to switch to a bank to secure a lower interest rate.
Refinance To A Better Loan Term
Different lenders offer different mortgage terms. Depending on your financial goals, you might want to switch to a lender that allows you to pay off your loan sooner or extend the time you have to pay to reduce your monthly payments.
Learn more: How The Right Mortgage Payment Option Can Save You Money
Switching From Variable-Rate To Fixed-Rate Mortgage (or vice versa)
If variable rates are high, you might want to switch to a fixed-rate mortgage to reduce your payments. On the other hand, if variable rates are dropping, you may want to switch from your fixed-rate mortgage to get a better deal.
To Consolidate Debt Or Access Equity Through A Cash-Out Refinance
If you have a lot of high-interest debt, you might consider a cash-out refinance. In a cash-out refinance, you borrow more money than you need for your mortgage. You can use the extra money to pay off debt or for another purchase.
Learn more: What Is A Cash-Out Refinance In Canada?
Alternative To Switching Mortgage Lenders
If your financial situation and credit score have improved since you took out your mortgage, you can see what you can negotiate with your current lender at renewal. Compare rates and terms of other lenders and use this information to try and negotiate a better interest rate and conditions.
Bottom Line
Whether you find a lower interest rate or want a lender that offers more flexible terms, it’s possible to switch mortgage lenders when you renew your mortgage or before. Waiting until renewal can help you avoid prepayment fees. If you plan to switch lenders before renewal, compare potential savings to fees to see if you’ll come out ahead.
