When my husband and I were about to buy our very first condo, I remember my mother saying, “Don’t go to your cousin Mate for the mortgage. I never liked that kid and I like him even less since he started working for his father.” Just to clarify things, all the men in my cousin’s entire family ended up working as mortgage consultants for Invis.
We went to Scotiabank, got our mortgage, felt pretty good about ourselves, received two motherly nods of approval, and the world of homeownership seemed pretty okay. That is, until we started talking to our friends about their mortgages, or rather, their costs of borrowing.
As it turned out, it was a great fad among our friends to completely forgo major banks as lenders and divert their attention towards mortgage corporations. Why? Simply, smaller, off-the-grid lenders were much more interested in their business, which was often rewarded with much better rates. We didn’t even wait for the five- year term to expire, but used the blend-and-extend feature to refinance after three years at much more favorable rates.
We bought our first home about 10 years ago, and it looks like things have become much tougher for big lenders in Canada. According to a survey conducted by Canada Mortgage and Housing Corporation (CMHC), last year, about 20% of Canadians went to a different lender for their mortgage renewals. In contrast, for the past six years, that percentage hovered steadily around 13%.
If your mortgage is up for renewal, or even if you’re thinking about refinancing, there are a few things you should be aware of. If your term is near expiry, your current lender will charge you something called a discharge fee, which can range from $150.00 to $300.00. Considering that you might be saving thousands if you find a lender willing to offer you better terms of borrowing, however, that discharge fee is peanuts.
However, if you’re refinancing mid-term, the penalty is much higher. In my experience, after three years on a five-year term, we had to pay three months’ worth of interest as penalty. However, our new lender absorbed most of that fee as a way of showing us he appreciated our business. So, if you’re a good negotiator, and if your lender has the flexibility, you might get away with the switch with no strings.
With a new mortgage, however, comes a slew of other fees, such as home appraisal fees and legal costs. Yes, you will need your lawyer again to transfer your mortgage from one lender to another. However, these fees will be much less than when you are transferring property along with the mortgage. Again, it pays to be daring, so ask again for these fees to be either waived or reduced. Your lenders are not likely to advertise this, but usually they have some maneuvering space when it comes to giving discounts.
Finally, or perhaps firstly, figure out why you are going through the hassle of switching/transferring your mortgage. If you are offered a better interest rate, that is a good reason. You might also ask for more liberal mortgage prepayment terms — another good reason. This particular reason was one of the most important ones to my husband, who figured we should be mortgage-free in seven years. (By the way, he was right, though I disagreed with him often on the strategy of dumping all our excess cash into the mortgage.) A shorter amortization period is one more good reason, as it will get your house out of lenders’ clutches sooner.
Before you do anything, give yourself some time to shop around. The best thing is to start 90 to 120 days before you have to make the decision, since this is usually the holding period lenders will secure your interest rate for. So, first secure one renewal/transfer, and then shop around. These days, you don’t have to walk from one office to another. A phone call is usually enough. Believe me, you’ll have lenders begging you for your phone number, not the other way around. If CMHC is right, right now Canada is a mortgage buyer’s market. So, happy shopping!