How Switching Your Mortgage Can Help Deal with the Current Interest Rate Increase in Canada
Dealing with the current interest rate increase in Canada? Time to pay attention to your
mortgage options! The market is constantly changing, and the lender you picked for your
mortgage might not be the best fit anymore. So, what can you do? Well, switching or
transferring your mortgage to a different lender with better conditions in light of the interest
rate hike might just be the smart move you need to make.
In this article, we've got all the info you need to know about switching your mortgage and how
it can help you deal with the current interest rate increase in Canada. Let's jump right in!
Understanding Mortgage Switch/Transfer
A mortgage switch or transfer means moving your present mortgage balance and outstanding payments from one lender to another. By switching lenders, you can score better terms that match the current interest rate scenario.
What It’s Not
Before we go further, let's clear up some confusion about what a mortgage switch/transfer is not:
- It's not an assumable mortgage, where the terms and balance are transferred from the current owner to a buyer.
- It's not porting, which is when you transfer a mortgage from your old house to a new one you're buying.
- It's not a refinance, which allows you to change the repayment schedule or loan balance. A switch/transfer won't give you those options.
Why Switching Makes Sense
Switching lenders through a mortgage switch/transfer can be a game-changer, especially when interest rates are going up. Here are a few compelling reasons why switching might be a smart move:
- Lower Interest Rates: Rising interest rates got you worried? Switching to a lender with lower rates can save you big bucks throughout your mortgage. Even a small drop in rates can mean thousands of dollars in savings.
- Better Prepayment Privileges: Want to pay off your mortgage faster and save on interest? Look for a lender that offers enhanced prepayment privileges. By contributing more to the principal, you can reduce the overall interest cost. Just make sure they don't charge crazy fees for it.
- Improved Terms: Different lenders have different terms. The porting options, penalties for early contract termination, variable or fixed rates, and bundled services can make a big difference in your mortgage experience. Switching to a new lender can get you terms that align better with your current financial situation.
- Better Service: A mortgage is a significant investment, so you deserve top-notch service. If you're not happy with your current lender's support, a switch/transfer gives you the chance to move your mortgage to a lender that values customer satisfaction.
Things to Consider Before You Switch
There are a few things you need to think about when choosing a new mortgage provider:
1. Effect on Amortization: Switching your mortgage won't change the remaining time for amortization. For example, if you're five years into a 25-year mortgage, the switch would be for the final 20 years. But keep in mind, some lenders might revert back to the original 25-year schedule.
2. Evaluating present Lender: Even though switching lenders may seem like an appealing alternative, it is crucial to carefully consider whether sticking with your present lender is the better option. Some of the things to consider include Interest rates, penalties for contract early termination, and the quality of prepayment. If the terms offered by your existing lender are better overall, lower interest rates might not be worth the expenditures involved in transferring.
3. Switching Costs: Changing mortgage lenders entails several expenses, including appraisal costs, short-term renewal costs, legal and title costs, assignment costs, and discharge costs. The costs differ from one lender to another. Some might provide incentives or perhaps completely cover the costs. Collaborating with mortgage brokers will help you realize the charges covered by prospective lenders and enhance your decision-making process.
The Role of a Mortgage Broker
Thinking of switching or transferring? Get some guidance from a mortgage broker like Superb Mortgages. They'll be your expert companion throughout the process. Here's how they can help:
- Mortgage Insurance: If your mortgage is insured, transferring that coverage to your new lender is essential. A mortgage broker can assist you with this step.
- Mortgage Commitment Evaluation: Your mortgage broker will review your initial mortgage commitment, looking for a bona fide sales clause. They'll use this information to guide your options.
- Finding the Best Rates: Mortgage brokers have access to multiple lenders and can help you find the best rates in the market. They'll connect you with a lender that suits your needs and offers attractive rates and conditions.
- Penalty Assessment: Your broker can help you understand any penalties associated with transferring your loan. They'll weigh potential savings from a reduced interest rate against the cost of the penalty to give you a clear financial picture.
- Covered Costs: Mortgage brokers can explain which fees the new lender will cover during the switch/transfer process. Having this information ensures you understand the costs involved.
- Additional Considerations: If you need to close a line of credit or sign a temporary renewal, your mortgage broker can guide you through those decisions.
When to Begin the Transfer/Switch Process
It is crucial to understand that moving your mortgage to a different lender is a procedure that
takes time. The switch/transfer procedure should ideally start about nine months before the
effective date. This window of time gives your mortgage broker plenty of opportunity to
analyze your present mortgage deal and look into alternate lending choices.
Starting early guarantees that you will have enough time to finish all of the necessary
switch/transfer process phases. A house appraisal may be required, which might take 6–8
weeks to complete, depending on the lender. Even without a requirement for an appraisal, you
should allow yourself at least 4 weeks to compile and provide all the necessary paperwork on
time.
Documents Required for the Transfer/Switch Process
1. Identification ID
2. Pre-Authorized Payment (PAP) information or Void Cheque
3. Invoice and Appraisal (If the lender requires) to evaluate the value of the property
4. Insurance Certificate Number
5. Fire/Insurance Policy
How Superb Mortgages Can Help
Superb Mortgages is aware that sometimes, especially when interest rates are rising, the
mortgage lender you initially select is not the best option for you and your loan. Our skilled
brokers can carry out a thorough requirements analysis to identify the best course of action if
you believe switching lenders could be the best course of action for you. We keep abreast of
market developments and can direct you toward a switch or transfer in your mortgage that is in
line with your present financial objectives and the current environment of interest rates.
In conclusion, moving your mortgage to a different lender through a switch/transfer can be a
smart decision to get around the recent Canadian interest rate increase. You might possibly
save thousands of dollars throughout the mortgage by taking advantage of lower interest rates,
better prepayment privileges, superior terms, and better service, and you could more
effectively reach your financial objectives.