Moving your mortgage between lenders in search of a lower rate can cost you
Homebuyers tend to shop around for the best mortgage rate they can find when first purchasing a property. But when renewal time comes around, chasing the best rate might not save enough to offset the costs of moving lenders.
Frank Napolitano of Mortgage Brokers Ottawa says the cost of moving a mortgage at renewal time will depend on the type it is. Typically, on a standard mortgage the cost of moving may be minimal, with a new lender possibly willing to absorb the fees. However, on a collateral mortgage, the fees will be more expensive.
What is the difference between the two types of mortgages? A standard mortgage is registered for the actual amount of the loan, while a collateral mortgage allows a home to be used as security for more than one loan. The downside of a collateral mortgage is that changing lenders with such a charge entails paying both discharge fees and new registration fees.
Frank Napolitano comments that "With a collateral mortgage you can't just move the mortgage from one institution to another without incurring either legal fees or title insurance fees.". Napolitano estimates the costs to move a collateral mortgage can be close to $1,000 after they are all added up.
It is very important to read the fine print of your mortgage commitment to see whether you are signing on for a collateral mortgage. Wanting to switch lenders just because they have a lower rate may not be worthwhile if the costs to transfer or break your mortgage are too high. You must calculate what the savings might be compared with the cost of moving.
Frank Napolitano mentions that if the discount on your rate is 5 or 10 basis points, the savings may not be there.
However, if the rate difference is a quarter of a percentage, then the savings would likely be there for you to move.
It is important to discuss your mortgage options with a professional, contact one of our mortgage brokers today!