Posted On Jan 28, 2021

This is the ideal time for you to take a look at your mortgage and see if you could benefit from current market movements.

You might be able to lower your interest rate or monthly mortgage payments, take cash out for home improvements, or consolidate debt.

Switching your mortgage can save you thousands—but it’s essential to consider these important points before you make the switch.

Pre-payment penalty

If your mortgage isn’t up for renewal or isn’t in an open term, your existing lender will likely charge a pre-payment penalty for you to switch. The amount is usually three months worth of interest payments, or the difference between the interest rate on your current mortgage and your lender’s current rate for the amount of time that’s left in your mortgage term (called the interest rate differential, or IRD.) This pre-payment penalty can get costly.

Switch incentives

To entice you to make the switch, your new prospective lender may offer a “switch incentive” to offset interest penalties. Ask if that’s an option when you’re talking with your mortgage broker. Keep in mind that adding an interest penalty to your new mortgage balance means paying interest on the pre-payment penalty.

Watch out for fees

Appraisal - If you want to add more money to your mortgage, there could be a cost of having your property’s value assessed.

Legal or title fees - Mortgages require legal paperwork, and lenders hire companies to do it for them. There are different kinds of legal mortgages, each with its own different fee. Know what kind of mortgage you have (usually a conventional first charge or a collateral charge), so you’re quoted accurate legal fees. If you are switching the same mortgage balance and term, most lenders will cover the legal fees on a closed mortgage.

Discharge Fee - This is an administrative/legal service fee from the lender you’re leaving to remove their lien (mortgage charge) against your property. Every lender charges a discharge service fee. Find out how much your current lender charges and ask upfront if that’s covered by the new lender.

Don’t sacrifice customer service

We all want to feel respected for our time and business, so warm and friendly mortgage brokers who know their stuff and return your messages promptly can be the deciding factor among multiple lenders offering the same rate. If you’re not getting great service during initial interactions, it’s unlikely a lender’s service will improve once they have your business.

If you’re thinking about shopping around for a lower mortgage rate, it’s important to understand the fine print before you make a move, or you could run into surprises.

Give me a call to discuss how to set you up for even more financial success!