If you’re a homeowner considering a mortgage switch, there are a few things you should be aware of. Exploring various mortgage options can save you thousands of dollars, but there’s also room for error if you’re not diligent. To prepare, here are four mistakes to avoid if you plan to switch your mortgage.
1. Don’t forget about hidden fees
Is your mortgage term up yet? If not, this might trigger a wave of fees that you didn’t know about. It’s important to check with your lender about the consequences of breaking your mortgage early. This typically includes a penalty fee – which can be up to three months of interest payments or the difference between your interest rate on your current mortgage and your lender’s current rate for the time left on your mortgage term (interest rate differential). A new lender will also have some associated costs such as appraisal fees to understand the value of your home, as well as legal fees for the assignment and discharge of the mortgage.
Pro Tip: Don’t make the mistake of disregarding the financial impact of a mortgage switch. Set your expectations by understanding the fees from your current and new lender.
2. Research and shop around for different mortgage options
Most people switch their mortgage to either lock in a lower rate or get better terms and conditions. A big mistake borrowers often make is renewing with their existing lender, which can cost them thousands of potential savings by simply not considering better rates or features. There are many mortgage lenders out there – from big banks to credit unions and monoline lenders – and each of them can offer something different and sometimes better. It can be overwhelming to assess the mortgage options out there and this can lead to making a premature switch without proper due diligence. It’s important to work with a knowledgeable mortgage advisor like ours at Homewise to take the stress out of the mortgage process and help you find a lender with competitive features.
Pro Tip: You may not need to switch or renew to another five-year fixed mortgage. Assess your financial goals over the next few years and consider finding a tailored option that aligns with your current financial situation.
3. Don’t lose your mortgage insurance
Take note of any mortgage life insurance you might have with your current lender because that will end as soon as you make the switch. This is not mandatory in Canada but many borrowers seek coverage to ensure their family is secure from mortgage debt in the event that they pass away.
Pro Tip: Check the pre-existing terms with your new lender before you officially make the switch. Reinstating your insurance may end up costing you more based on your age and health.
4. Don’t be fooled by the big banks and their “perks”
The big Canadian banks have the scale and power to promote their mortgage products more easily while offering potential discounts to existing customers. They may even entice you to switch all your bank products for a better mortgage option. Despite these perks, it’s important that you read the fine print and negotiate the best possible mortgage before you sign on the dotted line.
Pro Tip: Everyone’s financial situation is unique and there’s no one-size-fits-all mortgage solution. It’s important to consider mortgage options and shop outside your bank before you lock anything in.
If you’re ready to switch your mortgage lender, Homewise is here to help. All you have to do is apply online in just five minutes! One of our dedicated mortgage advisors will be assigned to you and will shop around over 30 banks and lenders to find you the best mortgage.
