Switching providers

There are two scenarios when it makes sense to switch providers at renewal:

1. To obtain a lower mortgage rate

2. To get better terms and conditions

Switching lenders is also an opportunity to find more favourable terms and conditions that align with your financial goals. Here are the terms and conditions to consider when you move home loan to another bank:

• Amortization options: Some lenders may allow you to extend or shorten your amortization period, which can help you adjust your payments to fit your financial situation.
• Prepayment privileges: Some lenders offer more flexible options for increasing regular payments or making lump-sum contributions, allowing you to pay off your mortgage faster and save on interest.
• Portability features: If you’re planning to move during your mortgage term, switching to a lender with better portability options can save you from breaking your mortgage and paying penalties.
• Renewal flexibility: A new lender might offer more flexible renewal terms, like shorter fixed periods, allowing you to adjust more easily to future rate changes.
• Rate types: If your current lender offers limited rate options, another provider may give you access to hybrid or variable-rate mortgages that better suit your preferences. Watch the video below to get tips on how to think about the type and term of mortgage. 

Consider prepayment privileges while switching mortgage lenders at renewal

Here’s a closer look at how different prepayment options can impact your savings.

Increasing your monthly payments by 10%

Imagine you own a $500,000 home with a $400,000 mortgage, amortized over 25 years. Your lender offers a renewal at 4.09%, resulting in a monthly payment of $2,124. If you stick to this payment schedule for the next five years, your remaining mortgage balance at the term-end will be $348,760.

Now, let’s say your current lender’s prepayment privileges allow you to increase your monthly mortgage payment amount by 10% once per year. If you take advantage of this only once at the beginning of your new 5-year term, here’s how it would look:

• Original monthly payment: $2,124
• 10% increase: $212.40 (10% × $2,124)
• New monthly payment: $2,336.40 ($2,124 + $212.40)

By maintaining this new payment, you’ll reduce your mortgage balance to $334,634 by the end of the term — $14,126 lower than the original scenario. This means that you’ll carry a smaller debt amount into your next renewal. More importantly, the higher payments will shorten your total mortgage amortization from 25 years to 21.35 years, helping you become mortgage-free almost four years sooner.

Increasing your monthly payments by 20%

Let’s say, instead, that you switched to a lender who offered you the same fixed rate (4.09%) but prepayment privileges that allowed you to increase your monthly mortgage payment amount by 20% instead of 10%. If you decided to take advantage of this only once at the beginning of your new 5-year term, your mortgage payment would look like:

• Original monthly payment: $2,124
• 20% increase: $424.80 (20% x $2,124)
• New monthly payment: $2,548.80 ($2,124 + $424.80)

If you made payments of $2,548.80/month for the entire 5-year term, you would reduce your mortgage balance to $320,532, taking $28,228 ($348,760 - $320,532) less in the next renewal as compared to the original scenario. You’ll also reduce your amortization period to 18.7 years.

It’s important to note that the prepayment options offered by every lender are slightly different. Some lenders allow you to increase your monthly mortgage payment amount by 10-25% once per year, and some allow you to put lump sum payments towards your principal every year or on your mortgage term maturity date; there are also many lenders that offer both options.

Steps for changing mortgage lenders

Switching to a new mortgage provider is a straightforward process that can save you money and provide better terms. Here’s a quick guide on how to navigate the steps.

1. Find a new lender

The first step is to find a lender who can offer you better mortgage rates and/or terms. You can:

• Do your own research by comparing rates and offerings from various lenders. Many lenders advertise their best rates online but keep in mind that these may be negotiable based on your financial profile.
• Work with a mortgage broker who can guide you through the process, present multiple options tailored to your needs, and even negotiate on your behalf to secure better terms.

2. Submit a mortgage application

Once you’ve chosen a lender and an offer you like, you’ll need to submit a formal mortgage application. Because your new lender may use different qualifying criteria than your current lender did, you’ll need to provide the following documents with your application:

• a copy of your mortgage renewal letter from your current lender
• proof you own your home, through something like a property tax bill
• confirmation of income through a pay stub or letter from your employer, and
• proof of property insurance.

Note: You can not change your mortgage amount or amortization period when switching providers. You can change your interest rate, payment frequency and prepayment options, but your mortgage amount and amortization period must remain the same.

3. Payout statement from your current lender

After your new lender approves your application, they will request a “Payout Statement” from your current lender. This document will include the details of your current mortgage, including your outstanding mortgage amount as of your renewal date. Your new lender will use the mortgage amount stated on the Payout Statement as your new mortgage amount with them.

4. Finalize the switch

To complete the process, you’ll meet with your new lender to pay any outstanding fees associated with switching. Once this is done, your new lender will pay out your mortgage with your old lender and issue you a new mortgage under the agreed-upon terms.

Cost to switch mortgage providers

The fees you’ll have to pay when switching providers may include:

• an appraisal fee to verify your property’s value ($150-$500)
• an assignment fee to transfer the mortgage from the old lender to the new lender ($25-$330)
• a discharge fee to discharge the old mortgage and register the new mortgage ($5-$395), and
• legal fees for your lawyer to sign the new mortgage agreement ($1,500).

Note: Lenders often offer to pay some or all of these fees when you switch providers and bring your mortgage to them.

When switching providers becomes more complicated

There are a few situations where you can’t simply switch providers using the methods described above. These situations include:

• If you want to switch lenders partway through your mortgage term or make significant changes like increasing your mortgage amount or adjusting your amortization period, you’ll need to refinance. Refinancing involves breaking your existing mortgage, which usually comes with a prepayment penalty and other fees. You can refinance with either your current lender or a new one, but it typically requires requalification based on current lending criteria.
• If you have a collateral mortgage, the process becomes more complex. Unlike standard mortgages, collateral mortgages cannot be easily transferred between lenders. You’ll need to hire a real estate lawyer to help discharge the mortgage, which will involve additional legal fees.

The bottom line

Switching mortgage lenders at renewal doesn’t have to be complicated, and it could save you thousands of dollars. Whether you’re after a better rate, more flexible terms, or even a cash bonus, it’s worth exploring your options before signing that renewal offer. Changing home loan lenders could be a simple step that gives you more control over your finances. 

Also read:

• Paying off a mortgage at renewal?
• Should you switch from a variable-rate to a fixed-rate mortgage?
• What happens if your mortgage renewal is denied?
• 5 tips for mortgage renewal time
• Can't afford your mortgage renewal? Here's your action plan
• How early should I renew my mortgage?