• Should I switch mortgage lenders?

    Before answering this question “should I switch mortgage lenders”, there are some other questions that would need to be answered first, before making this determination.

    When does my existing mortgage mature?

    The reason why the answer to this is important is because if you try to switch mortgage lenders prior to the existing mortgage maturing, you will likely be subject to a penalty.

    How much is the penalty?

    If you are in a variable rate mortgage, the penalty will be 3 months interest. This is usually an acceptable amount. If you are in a fixed mortgage, the penalty will depend on the mortgage amount, how much time is left in your term, the mortgage rate that you received when you set up the mortgage, the posted rates at the time you set up the mortgage, and the lender. The penalty on a fixed rate mortgage can be very high at times. I’ve seen penalties upwards of $20K.

    Why am I switching lenders?

    If the reason you are switching lenders is to get a better rate, the numbers will need to make sense. In other words, the savings must outweigh the penalty. We can help you with those calculations.

    Am I planning on making changes to my mortgage?

    If you are keeping the same mortgage amount, not changing anything, and simply switching lenders, you should probably wait until the mortgage matures if possible; unless of course the rate and penalty offset each other. However, if you plan on refinancing, that’s a different story. Then we really need to check why you are refinancing. For example, if it is to pay out some high interest debt, those savings would need to be factored in with the penalty. It may be worth paying the penalty.

    What is blend and extend?

    If your intention is to refinance and increase your mortgage, a blend and extend can sometimes give you the best of both worlds. You keep your existing mortgage lender, blend the existing mortgage with the new amount for a new larger total, and you get a new rate on the whole new amount that is usually somewhere in between the old rate and the new posted rates. By blending and extending, you can avoid paying a penalty.

    Get Some Free Advice

    So as you can see, it is not simple to answer the question: should I switch mortgage lenders. It is best to talk to a mortgage broker so that all of the variables can be considered. You have nothing to lose because the advice is free!

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