Switching Lenders – A Comprehensive Guide

Switching lenders refers to the process of transferring an existing mortgage from one lender to another. This option is available to homeowners who want to take advantage of better rates, terms, or services offered by another lender. Switching lenders can help borrowers save money and improve their overall financial situation. In this article, we’ll take a closer look at the process of switching lenders in Canada and how a mortgage broker can help.

When switching a mortgage it is important to note that the mortgage amount and term must stay the same. Changing the amortization or loan amount will make it a mortgage refinance. Legal costs for a refinance will be more than for a switch.

Why Switch Lenders?

There are several reasons why borrowers may choose to switch lenders, including:

Lower interest rates: The most common reason to switch lenders is to take advantage of lower interest rates. If interest rates have decreased since you took out your mortgage, switching to a lower rate can save you thousands of dollars over the life of your mortgage.
Better terms: Borrowers may also switch lenders to get better terms, such as more flexible repayment options or lower fees.
Improved service: If you’re unhappy with the service you’re receiving from your current lender, switching to a lender that offers better customer service can make a big difference.

How to Switch Lenders

The process of switching lenders in Canada involves several steps, including:

Research and compare lenders: Start by researching and comparing lenders to find one that offers the best rates, terms, and services for your needs. Consider factors such as the lender’s reputation, customer service, and the types of mortgages they offer.
Apply for pre-approval: Once you’ve found a lender you like, apply for pre-approval. This will give you a good idea of the rates and terms you can expect to receive.
Submit your application: Once you’re ready to proceed, submit your application to the new lender. This will involve providing documentation such as proof of income, employment, and credit score.
Appraisal and underwriting: The new lender will conduct an appraisal of your home to determine its value, and they will also conduct underwriting to assess your creditworthiness.
Approval and closing: If you’re approved, the new lender will provide you with a commitment letter outlining the terms of your new mortgage. You’ll need to sign this letter and have your lawyer review it before closing.
Pay out your old mortgage: Once you’ve closed on your new mortgage, your new lender will pay out your old mortgage, and you’ll start making payments on your new mortgage.

How a Mortgage Broker Can Help when Switching Lenders

A mortgage broker can help simplify the process of switching lenders by:

Researching lenders: A mortgage broker has access to a wide range of lenders and can help you compare rates, terms, and services to find the best fit for your needs.
Preparing your application: A mortgage broker can help you prepare your application and ensure that you have all the documentation you need to apply.
Negotiating on your behalf: A mortgage broker can negotiate with lenders on your behalf to get you the best rates and terms.
Managing the process: A mortgage broker can manage the entire process of switching lenders, from submitting your application to closing on your new mortgage.

How to Save Money by Switching Lenders

Switching lenders can save you money in several ways, including:

Lower interest rates: By switching to a lender with lower interest rates, you can save thousands of dollars over the life of your mortgage.
Lower fees: Some lenders charge lower fees than others, so switching to a lender with lower fees can also save you money.
More flexible terms: Switching to a lender with more flexible repayment options can also help you save money by allowing you to pay off your mortgage faster or with lower payments.

Potential Costs of Switching Lenders

While switching lenders can save you money, it’s important to consider the potential costs involved. Some of the costs to consider include:

Prepayment penalties: If you have a fixed-rate mortgage, your current lender may charge you a prepayment penalty if you switch lenders before your mortgage term is up. This penalty can be substantial and may offset any potential savings from switching.
Legal fees: You’ll need to hire a lawyer to review your new mortgage commitment letter and close on your new mortgage, which can add up to several hundred or even thousands of dollars.
Appraisal fees: The new lender may require an appraisal of your home, which can cost several hundred dollars.
Other fees: There may be other fees involved in switching lenders, such as discharge fees from your current lender or application fees from your new lender.

Switching lenders can be a great way to save money on your mortgage and improve your financial situation. It’s important to carefully consider the potential costs and work with a mortgage broker to ensure that you’re getting the best rates and terms. By doing your research and comparing lenders, you can find a new lender that meets your needs and saves you money over the long term.

When Not to Switch Lenders

Early in Your Mortgage Term: If you’re early in your mortgage term, switching lenders may not be worth the cost. This is because the prepayment penalties charged by your current lender could outweigh any potential savings you might get from switching.
Poor Credit: If your credit score has decreased since you took out your current mortgage, you may not be eligible for the best rates and terms from a new lender. In this case, switching lenders may not result in significant savings.
Unfavourable Housing Market Conditions: If the housing market is unfavourable, it may not be a good time to switch lenders. This is because the value of your home may have decreased, making it more difficult to refinance.
Short Time Left on Your Mortgage: If you only have a few years left on your mortgage, switching lenders may not be worth the cost. This is because you may not have enough time to recoup the costs associated with switching.
A Variable Rate Mortgage: If you have a variable-rate mortgage, switching lenders may not be beneficial if interest rates are expected to rise in the near future. This is because your current lender may offer a lower rate than what you would be able to get from a new lender.

Switching lenders can be a smart financial move for many borrowers, but it’s not always the best option. It’s important to carefully consider the costs and benefits of switching lenders before making a decision. Working with a mortgage broker can help you assess your options and find the best lender for your needs. By doing your research and weighing your options, you can make an informed decision that helps you save money and improve your financial situation.

When to Start the Process of Switching Lenders

If you’re considering switching lenders, it’s important to start the mortgage application process well in advance of your mortgage renewal date. Here are a few key things to keep in mind:

Review your mortgage agreement: Before you start the process of switching lenders, review your current mortgage agreement to ensure you understand the terms and conditions, as well as any penalties or fees associated with breaking your current mortgage.
Check your credit score: Your credit score is a key factor that lenders consider when deciding whether to approve your application and what interest rate to offer. Check your credit score and take steps to improve it if necessary.
Shop around: Research and compare rates from multiple lenders to ensure you’re getting the best deal. A mortgage broker can help you with this process by providing access to a range of lenders and helping you negotiate better rates and terms.
Start early: Start the process of switching lenders at least three to six months before your mortgage renewal date. This will give you time to find a new lender, complete the application process, and close on your new mortgage before your current mortgage term expires.

Working with a mortgage broker can be a great way to streamline the process of switching lenders and ensure that you’re getting the best rates and terms. Here are some of the ways that a mortgage broker can help:

Access to multiple lenders: A mortgage broker has access to a range of lenders and can help you compare rates and terms from multiple sources.
Expert advice: A mortgage broker can provide expert advice on the mortgage process and help you understand your options and make an informed decision.
Negotiation: A mortgage broker can negotiate with lenders on your behalf to get you better rates and terms.
Paperwork: A mortgage broker can help you with the paperwork and ensure that everything is in order for a smooth closing process.

Switching lenders can be a great way to save money on your mortgage and improve your financial situation. However, it’s important to start the process early, understand the potential costs, and work with a mortgage broker to ensure that you’re getting the best rates and terms. By taking the time to do your research and work with an expert, you can make an informed decision that helps you achieve your financial goals.

For more information on switching your mortgage to a new lender call 416-912-6200