Purchasing a home is one of the largest investments that most Canadians will ever make. Along with committing to a new address, homeowners are committing to a long-term loan agreement. Mortgages are designed to last for decades and a lot can happen during this time. The mortgage agreement and lender that made sense at the outset of your purchase may not make sense after a few years.
Instead of being trapped in an inconvenient arrangement, switching mortgage lenders at renewal offers borrowers the chance to make changes to payment frequency and amounts, opt for more beneficial terms and conditions or refinance completely.
Why Switch Lenders: When Making the Switch Makes Sense
Switching mortgage lenders involves either transferring your home loan from one lender to another or refinancing with an entirely new contract. There can be distinct advantages to switching lenders, some of which might include incentives and other, more agreeable terms. If you are wondering whether or not a switch can benefit you, consider the advantages and potential penalties or fees, associated with the process.
- Lower Interest Rate: Property is a great investment, but it is an expensive one. When dealing with large sums of money, even a small interest rate differential can make a huge difference. If a lender is willing to offer mortgage rates that are lower than what you currently pay, it could save thousands in interest payments over time.
- Better Terms and Conditions: When entering into a mortgage agreement, there are very strict terms and conditions that must be adhered to. These conditions dictate pre-payment options, maturity date and renewal date. While some of these may work just fine for you, others may be less agreeable as time goes on. Pre-payment options are one of the most commonly contested. If your current lender does not offer sufficient pre-payment options, switching lenders to a more accessible pre-payment plan can help to pay down mortgages faster.
- The Option to Refinance: Just because someone owns property does not mean that they have cash on hand. Other investment opportunities or large bills present themselves every day. When looking to renovate homes or fund college educations or pay student loans or lines of credit, refinancing with another lender can improve rates and terms, while making it possible to pull equity in order to pay down outstanding debts or reinvest this capital elsewhere.
- Accommodate Changing Financial Situations: The average length of a mortgage term is 5 years and a lot can happen during this time. Household incomes can go up or drop down, you may have welcomed a new baby or gone back to school. No matter what has happened, it is important that your payment amount reflects that. Switching lenders can help to reset your fixed payment amounts, interest rates and length of loan.
What to Expect When Switching Lenders
You do not have to wait for a mortgage renewal letter to start the mortgage application process. Before you commit to switching lenders, it is important to understand everything that goes along with it. If you find that the pros outweigh the cons of these fees, consult with a professional about the best way to move forward.
Refinancing is essentially the same process as taking out your original mortgage, which means legal fees and administration fees but these also come along with penalties. Pre-payment penalties and penalties for paying your loan off before the maturity date. or legal fees are all a reality of switching mortgage lenders.
Do not wait for a renewal statement to get the ball rolling on your switch or renewal. By looking ahead to the future, it is possible to navigate the complicated questions that come along with the process. Mortgage brokers are able to help with the research process, presenting the best options to clients. From there, mortgage experts can help to fill out applications, submit forms and gather any necessary information.