Should I switch my mortgage?
There are several reasons why you might want to switch your mortgage. Maybe you want a better rate than the one you’ve got, or the mortgage you have isn’t flexible enough for your current needs.
When your mortgage comes up for renewal, you have a perfect opportunity to re-evaluate and switch to something better.
So how do I switch my mortgage?
You’ve decided to switch? Awesome. Now you’ll need to decide on the mortgage you want and apply. You’ll also need to hand over:
- A copy of the mortgage renewal letter from your current lender
- Proof that your property taxes are paid and up to date
- Confirmation of income, like a pay stub or letter from your employer; your lender may require additional proof of income
- Confirmation of assets, such as bank accounts or investments
- Proof of property insurance
After the new lender gives you their stamp of approval, they will request a payout statement from your old lender. This statement includes the outstanding mortgage amount and any applicable switch fees as of your renewal date. This amount is now the total of your mortgage with the new lender.
After that, they’ll pay out your mortgage with the old lender, and issue you a new one.
Stuff you need to remember
- You can’t change your mortgage amount or increase your amortization period when switching providers. If you want to do that, talk to your new lender about refinancing.
- Costs you incur from switching lenders (up to $3,000) can be added to your mortgage and amortized, rather than paid out in full. If the total is above $3,000 it may be considered a refinance by your lender and additional premiums may apply.
- If you switch providers before your mortgage term ends, you’ll have to break your mortgage term and pay a prepayment charge to your current lender.
Is switching worth it?
Switching can seem like a hassle but it can really pay off. Even switching to a mortgage with a slightly lower interest rate can make a big difference. Here, we’ll use an example so you can see how it all adds up.
Let’s say you have $400,000 to pay off after your first 5-year term, with a 20-year amortization left. You can renew your existing fixed rate mortgage at 2.40% for a 5-year term or switch to a different provider with a fixed rate mortgage at 1.99% for a 5-year term. Let’s crunch some numbers.
2.40% for a 5-year term = $2,097.87 monthly payment
1.99% for a 5-year term = $2,020.09 monthly payment
That might not seem like a big enough difference to bother with switching your mortgage, but look at it over 5 years:
2.40% for a 5-year term = $42,360.55 in interest
1.99% for a 5-year term = $35,010.48 in interest
That’s a difference of $7,350.07!*
Types of fees when switching your mortgage
The exact amount will depend on the lender, but here are the types of fees you usually pay:
- Appraisal fee to verify your property’s value
- Assignment fee to transfer the mortgage from the old lender to the new lender
- Discharge fee to discharge the old mortgage and register the new one
- Legal fees for your lawyer to sign the new mortgage agreement
Don’t let fees put you off, though. Lenders are keen for you to switch, so they often offer to pay some or all fees.
Great reasons to switch to motusbank
At motusbank, you’ll always get an amazing, competitive rate. Check out our rates, and see for yourself
20/20 prepayment privileges
Pay down your mortgage faster. You can either pay down through lump sum payments and/or increase your regular mortgage payments up to 20% of the original principal every year – without penalty!
Skip one month’s mortgage payment to get some extra breathing room when the unexpected happens.
Get a payment schedule that fits your life and budget: weekly, bi-weekly, monthly, bi-monthly, or accelerated weekly or bi-weekly.
Our Group Mortgage Protection (GMP) helps safeguard your home in case of financial hardships like death, disability or critical illness.
Learn more about motusbank mortgages
A previous version of this article was published on September 3, 2019.
*Calculations are for illustrative purposes only and assume no other costs. Rates subject to change at any time.