Guide to Switching Mortgages in Canada

Switching a mortgage from one lender to another is one way to get better terms, a lower interest rate or improve your repayment options.

It’s also possible to switch your mortgage type or term, while staying with the same lender.

In both scenarios, it’s important to weigh the potential costs, benefits, and possible drawbacks so you canmake an informed decision about whether switching is right for you.

Reasons to consider switching mortgages

You want to switch to a new lender or bank. A new lender may be able to offer lower interest rates or a more personalized level of service.
You want a new rate type. It’s possible to switch from a variable-rate mortgage to a fixed rate, and vice versa.
You want a new mortgage term. Shortening your term could reduce your overall interest costs while extending the length of your mortgage term could make monthly payments more manageable.

Switching mortgages when your agreement is up for renewal makes it easier to avoid costly prepayment fees, but it’s possible to do so at any time, even in the middle of your mortgage contract.

There’s no legal requirement to stay with the same lender throughout your entire term, however, because switching mid-term involves breaking a binding contract, you may incur certain fees.

Mortgage discharge fees can be up to $400, while prepayment penalties can be the equivalent of three months of interest payments on the outstanding balance or the interest rate differential, which is the difference between your current interest rate and the rate currently offered by the financial institution.

Nerdy Tip: If the thought of passing a stress test kept you from looking into different lenders last time you renewed, know that next time will be different: Lenders are no longer required to use the mortgage stress test on borrowers who are switching from another lender at renewal.

What to consider before switching mortgage lenders

The following are important considerations when deciding if you want to change your mortgage lender.

Should you use a mortgage broker?

Mortgage brokers have access to a wide network of lenders, beyond what a single financial institution can offer. A wider network means that you’ll have more options and potentially find better terms or rates. And because a broker isn’t beholden to a specific financial institution, they may be better positioned to offer independent advice about how switching mortgages may or may not benefit you.

Finally, choosing the best mortgage option means more than looking at a list of rates and choosing the lowest one. Mortgage brokers have deep knowledge about mortgages, which you may not realize you need at the outset.

For example, on r/PersonalFinanceCanada one Reddit user facing a mortgage renewal posted they were trying to understand whether a collateral charge mortgage, which they were unfamiliar with, would be a good choice given its low rate.[1] Problem is, they weren’t sure they understood the product. They said they regretted not using a broker who would have helped them navigate their options.

Will your savings outweigh the costs?

Upfront costs for switching mortgages may include things like discharge fees, appraisal fees and legal fees. There may even be an assignment fee (which is the fee charged for going from one lender to a new one) that can be as much as $500.

Long-term costs to consider include how much you’ll save in interest over the course of your loan if you switch for a better rate. To really know if changing lenders is worth it, it’s crucial to carefully weigh overall costs versus long-term savings.

Steps to switch your mortgage to another lender

Do your research. Compare current mortgage rates and APRs from different lenders to determine who may be able to offer the lowest rates and fees, as well as the most favourable repayment terms. You may also find that some lenders will offer rebates on your discharge or assignment fees.
Qualification criteria. Just like when you purchased your house, potential lenders will evaluate your ability to repay the new mortgage. For the best chance of being approved, ensure you have stable income, a good credit score and can meet desired debt service ratios.
Gather documentation. Lenders may want to see things like property tax bills, payment stubs and your current mortgage agreement.
Submit an application. Once you’ve identified potential mortgage providers, submit a formal application.
Get your payout statement. Your current lender will need to provide you with a payout statement that details your remaining mortgage balance, among other info.
Take care of any fees. Before finalizing the switch, settle any outstanding fees on your mortgage.

How to find the best mortgage rates when switching lenders

When shopping rates pay attention to include things like APR, loan terms and repayment options. Also keep in mind that posted rates are rarely the lowest a lender can offer; special or discounted rates can often be obtained through pre-approval and negotiation.

Look into mortgage brokers who may have access to more attractive rates than traditional banks.

Yes, it’s possible to switch to a fixed-rate mortgage from a variable-rate mortgage, often without a fee. It’s often harder and costlier to go from a fixed rate to a variable rate. Some lenders may even require that you renegotiate your mortgage to make the change. However, the process and potential fees will vary by loan provider and mortgage agreement.

You’re allowed to switch your mortgage to a new lender at any time but if you do it before the end of your term, you may be subject to high prepayment penalties.