Moving your mortgage between lenders in search of a lower rate can cost you
When the time comes to renew your mortgage, chasing the best rate might not save enough to offset the costs of moving lenders.
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OTTAWA - 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.
For example, on a standard mortgage, the costs of moving may be minimal and the lender who is taking over the loan may be willing to absorb them.
However, on a collateral mortgage, the fees will be more.
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 is that changing lenders with a collateral mortgage entails paying both discharge fees and new registration fees.
“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 says.
“Therefore the interest rate savings have to be in place in order for you to make it worthwhile to move from one institution to another.”
Napolitano estimates the costs to move a collateral mortgage can be close to $1,000 after they are all added up.
If you have a home equity line of credit in addition to your mortgage, you very likely have a collateral mortgage.
But even those who don't may still have one and it may be necessary to read the fine print on the mortgage or to call the lender to find out and determine what the costs of moving may be.
To know if it is worthwhile to move lenders, you need to calculate what the savings might be compared with the cost of moving.
“If its five or 10 basis points, the savings may not be there,” Napolitano says.
“If we're talking a quarter of a percentage point, the likelihood is there that you're better off to move it from one institution to another.”
Barry Gollom, vice-president for mortgages and lending at CIBC, says while collateral mortgages can be more expensive to switch between lenders they offer flexibility in other ways.
Collateral charges allow you to use the home as the basis for more than one loan and borrow more in the future more easily.
“But what you can't do, as rule, is do an assignment or transfer of a collateral charge from one institution to another institution,” Gollom said.
Gollom adds that whatever a mortgage borrower does has to make sense in the context of their overall financial plan.
“In the months leading up to the renewal or maturity date, it is a great opportunity for the client, for the individual to meet with their financial adviser and look at their whole financial plan,” he said.
Stay on the right side of the rules. Just missing a payment by one day could end your “special offer” and take you into deadly interest territory.
It comes down to math: The first step is to add your net incomes together. Then divide each individual income by this figure and multiply by 100.