5 Mortgage Switch Surprises to keep an eye out for. Switching your mortgage can save you thousands however choosing the right one can be a challenge.
With the Government of Canada 5-year “bond rates” being all over the map, interest rates are changing daily. Lenders often have rate specials to get their pool of money out to work. Think of it like this: Safeway has a sale on toilet paper – it’s their way to get you in the door and also coming back for future purchases.
Shopping around for a lower interest rate on your mortgage, it’s important to understand the fine print before you make the move. Interest rates are important however understanding the fine print could save or cost you a lot of money. Here are five things to consider before you switch.
1. Watch for Hidden Fees
Leaving your current mortgage provider before your mortgage term up usually triggers a host of fees. Check with your current mortgage provider as well as the new lender if they have any fees that you will incur for switching lenders. Here is a quick checklist:
• Interest Penalties. If your current mortgage isn’t quite up for renewal or you aren’t in an open term, you will be charged an interest penalty for breaking the term. The lender has the choice between and IRD (Interest Rate Differential) or 3 months interest penalty whichever is higher. Many lenders will allow you to “cap” up to 3k in fees however you will then be paying interest on this added amount.
• Appraisal. Most lenders do not require an appraisal to move your current mortgage over to them however some may request it especially if it is a conventional mortgage (more than 20% down payment when purchasing it).
• Legal or Title Fees. All mortgages require some sort of legal paperwork to be completed, including transferring your mortgage to a new lender. Some lenders will cover the cost, while some will not. There are different kinds of charges on a title for a mortgage, standard charge and collateral charge. They each have a different legal way for the transfer paperwork to be completed. A collateral charge is usually the one that can have a fee associated with it.
• Discharge Fee. Every lender will charge a discharge fee as there is always a cost to remove their current mortgage charge that is on the title. Sometimes the new lender will pick up this charge and sometimes they will not.
• Property Tax Administration Fees. Lenders may charge you an administration fee to collect and pay your property tax bill. I always recommend paying your property taxes directly to the City you live in. It is called the TIPPS Program (Tax Installment Payment Plan)
2. Don’t Pay more for banking services
Banks will often entice consumers with lower interest rates if they bring over all their banking such as investments etc. Ensure you understand what fees are involved with every product you are moving over. Some may have higher fees than what you are currently receiving.
3. Customer Service
At the initial meeting, if you feel you are not getting the type of service you’re hoping for, trust me it will not get any better as time goes on.
4. Changes in qualification can be impacted by a life event
Life events such as the birth of a child, marriage, divorce or loss of employment can drastically affect whether you can requalify for a mortgage. When buying a home or trying to switch lenders for a better rate or term now has changed since B-20 came into effect. Lenders know that consumers’ situations can change, which is why they often do not offer the best mortgage rates upon renewals so make sure you are always in a position to requalify.
5. Ensure you’re not auto locked in
When your mortgage term is up, lenders can auto-renew you into another fixed term. Signing the renewal into an open term is a way to protect you from costs. The interest rate is higher however you may only be paying a couple of days interest before your new lender receives a payout statement from your current bank. Lenders typically try to stall this process as some consumers do not know to do this and therefore receive a penalty unknowingly. When the new lender requests a payout statement from your current institution, they can take 10 days before they issue the statement. Dragging their feet on this can either give the current lender time to try and keep you there or hope you didn’t renew into an open term so they can collect a penalty.
When looking to transfer or switch your current Edmonton mortgage, make sure you are working with a qualified professional from Mortgage Tailors who will help mitigate any of the above stress and help make the process as smooth as possible.
If you have questions, don’t hesitate to reach out to Eva Neufeld (Edmonton’s Top 3 Mortgage Brokers) at 780-244-0505 or firstname.lastname@example.org