Should You Stay or Should You Switch?

Get loud, pay less.

Do you know how many Canadian homeowners simply accept their bank's renewal offer without doing a bit of research? Too many!

That's why we're here. Our expert brokers get loud on your behalf to convince you of the benefits of looking around, and the extra noise may help you save thousands on your next mortgage term (those savings are 'after tax,' which helps boost your bang for the buck).

Your first renewal offer is just that (and here's what it isn't).

A big bank makes a first offer that usually isn't the best deal they can muster. It's likely a standard one, based on your upcoming maturity date, current market rates, and what client tier you fall into.

They're hoping you'll just sign for an easy conversion that makes them more money ("Well, that was easy!" they say.)

Not only might you be paying a higher rate, but your mortgage features may not offer you the flexibility you need — which could allow your bank to make additional cash later from higher fees and penalties if you need a change.

Non-bank mortgage lenders (those specializing in mortgages and which don't typically take client deposits) or smaller banks may offer a more competitive renewal offer. They don't have the same overhead or multi-product offerings to deal with that the big banks do.

When will you receive your first renewal offer?

Ultimately, without purposeful contact with your bank, you may receive a renewal offer by email or mail a few months or weeks before your mortgage maturity date. Or, you may find one sitting in your online account. 

Legally (government-wise), you're supposed to receive your offer at least 21 days prior to your term's end, which is actually pretty tight timing if you want to switch lenders or make a substantial change, such as a refinance.

Ideally, your renewal switch comfortably needs at least a month to ensure you won't pay more if it takes longer than anticipated (your term could lapse into a temporary term at a much higher rate).

What can influence a lender's first renewal offer?

Several factors can influence your initial mortgage renewal, including your:

• Financial situation, including credit score
• Current mortgage status
• Market conditions
• Lender policies

If you need to refinance and haven't informed the lender, your first renewal offer won't count, as you'll need to renegotiate the terms for a new offer.

Your Financial Situation

Your lender may be aware of changes in your credit score, income stability, and debt levels, though these details are typically more relevant if you switch lenders rather than stay with your current one. 

However, if your lender believes your financial situation has changed, they may offer you higher rates if they perceive an increased financial risk. That doesn't necessarily mean that another lender will have the same perception — which is a great reason to look around.

Your Mortgage Status

Do you have a fixed-payment variable-rate mortgage with a big bank? Your amortization may have ticked up, which could significantly raise your renewal payments and come with a higher mortgage rate, as your mortgage balance is re-amortized back to the original minus time served.

Have you paid more down over your term? You'll find that your payments may be lower, and if other financial details align, you may also receive a better rate (though not necessarily your best rate offer on the first go).

Market Conditions

Any lender will offer a renewal rate in line with current markets. But not all lender offers are equal. Each will have its own forecasts, portfolio budgets, and client retention strategies based on economic conditions that can influence the rate you're offered.

Lender Policies

Here again, this one isn't necessarily all about your mortgage rate. Lenders may offer a less-flexible mortgage product for renewal, so requesting changes or different options could alter your rate offer, incur new fees, or simply not be available with that lender (e.g. more generous pre-payment privileges).

Stay? The quieter way to renew.

Ultimately, you may not want to switch. The idea of switching can feel overwhelming, or seem inconvenient if your mortgage is at a separate institution from your other financial products.

And, despite paying a higher mortgage rate, you may still save on other financial products with the same lender (many deposit-taking banks have a 'bundled' approach to keep your business).

No matter your lender, you can always talk to an expert True North broker at any time during your term.

It's free and there's no obligation to review your needs and gain essential insight into your mortgage goals, such as a second home or investment property, that you may not get when dealing with your lender's sales rep.

Switch? Renewal noise now, save more.

If switching is your best mortgage option, the process is like covering your ears for a one-time noise. When it's (hopefully quickly) over, you'll continue saving for the rest of your term, or use your more flexible mortgage options to get ahead on your mortgage goals.

At True North, we regularly help our clients seamlessly make the switch, and they're only too happy to go on with their busy lives with their better mortgage.

And, you typically won't have to contact your old lender to let them know your mortgage is coming to an end.

What mortgage features might you be missing?

Beyond switching for a better rate (the most common reason for transferring a mortgage), here are some features that you may not be getting with your current mortgage lender:

• Free payment frequency changes
• Mortgage recasting (payments lowered mid-term that reflect amounts paid down on the mortgage principal)
• Porting (moving your rate and mortgage to another home, subject to government and lender criteria)
• Ability to get a short-term mortgage solution (to help you get out of a mortgage jam)
• More flexible pre-payment privileges (amounts you can put down on your mortgage without a penalty)

Does it cost money to change lenders?

A transfer process usually involves additional fees, though some lenders may cover certain ones to make it more enticing to switch:

• Fees may include discharge, mortgage registration, transfer and/or assignment fees
• If needed, an appraisal fee to confirm the value of your property
• Other admin or legal fees may apply depending on your situation (e.g. removing or adding a guarantor)

Your expert broker can help outline whether the costs are outweighed by the benefits of switching.

Can you switch an insured mortgage?

Yes. If you already have default mortgage insurance on your existing mortgage, it's important that the new lender is aware (your broker will ask you for this information).

Insured mortgage status can help you get a lower mortgage rate. However, if you increase your mortgage balance or amortization, the insurance is no longer valid (considered a refinance), and uninsured mortgages typically carry higher mortgage rates.

Will your mortgage switch be subject to the federal stress test?

Most insured and uninsured mortgage switches are no longer subject to the federal mortgage stress test rate, which requires you to qualify for your mortgage at a higher rate than your contract rate to ensure you can still handle the payments.

Switching mortgage lenders if you have a collateral charge.

Your mortgage can be registered as either a standard or collateral charge.

A standard charge is considered the easiest to transfer, as it incurs fewer fees and often comes with a better mortgage rate.

A collateral charge means your mortgage is registered as more than your original balance, with 'padding' added to provide financing room for a HELOC. This type of charge isn't transferable, meaning a new mortgage registration is required with a switch, which involves more process steps and typically incurs additional fees.

Switch or stay, a broker speaks up for your better deal.

Is it easy to remortgage without a broker?

Remortgaging yourself at renewal is a bit like DIY home improvements. It may seem doable, but the work could end up costing you hours and cash if you miss a lender offering increased savings or overlook certain details. 

Ever tried to get a hold of your bank rep? You'll need time and patience to compare deals, chase reps, and deal with the paperwork and process, plus watch out for unintended hits to your credit score from multiple lender inquiries.

And if your solo efforts result in a decision to switch, just because a lender indicates it wants your mortgage business, doesn't mean it will go smoothly. Even though the new lender initiates the transfer (though you'll need to use a lawyer or FCT, a title insurance provider, to complete the transfer), it involves two lenders cooperating.

An expert broker representing you has access to the internal professionals on both sides, if needed, to help move your process along as seamlessly as possible.

How does a mortgage broker get better rates?

Mortgage brokers have strong relationships with several lenders, giving them more negotiating power. Lenders often provide high-volume brokers with better rates because they bring in more clients.

Brokers can often negotiate on your behalf to secure lower interest rates or better terms than you could on your own. If you deal directly with your bank, they're not assuming you have an arsenal of lenders to compare to, and will offer accordingly.

Is it better to renew with a bank or non-bank lender?

Big banks offer a plethora of financial products and services, but their mortgage options may be more limited (one size fits all) and carry stricter eligibility requirements.

Non-bank lenders, such as Mortgage Finance Corporations (MFCs), have lower overhead than big banks, and typically offer competitive rates and more flexible mortgage options and solutions. They can also offer more personalized service because mortgages are their main business. These lenders, such as True North's CMHC-approved THINK Financial, are just as closely regulated by the federal government as the big banks.

But an experienced mortgage broker can quickly find your best solution for your situation, whether with a big bank, a non-bank lender — or an alternative or private lender.

If your mortgage could talk, it would say 'shop!'

When your renewal date approaches, don't stay mum. Our expert brokers can amplify your mortgage savings, turning up the volume to find your best renewal solution.

We can help simplify your renewal process, whether your details are straightforward or more complex, to help you save the most on your mortgage, this term and the next (and the next).

Coast to coast, we're here for your mortgage needs. Connect with us online, over the phone, by email, chat up Morgan our chatbot, or visit a store location near you.