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Pros & Cons of Switching Lenders at Renewal

current mortgage rates edmonton
current mortgage rates edmonton

Pros & Cons of Switching Lenders

Mortgage renewal round the corner? Considering switching lenders at this stage? Well, there could be a number of reasons that prompt you to do so. You may be looking around for lower interest rates or looking for a reconsideration of certain terms like an early pay off with no additional fee etc. Or maybe, you are just not happy with your current mortgage broker.

Whatever the reason is, you may want to look at the pros and cons of switching lenders before arriving at a decision. We hope this information helps you in doing so.

The Pros to switching lenders

Although the process of switching lenders may seem stressful, there could be situations that demand the move. As mentioned earlier, the reasons could be:

Lower mortgage rates – Interest is the biggest factor and cost that you need to consider while taking this decision. If there is another lender that can offer you a lower mortgage rate than your current lender, you can end up saving thousands of dollars in interest charges!

For instance, if your current mortgage lender is offering a 5-year fixed term with an interest rate of 2.59%, it would make sense for you to consider another lender who has a fixed rate of 2.39% for the same time period. You are likely to make a net savings of thousands of dollars by making this move!

Better terms and conditions – Prepayment options in your mortgage terms and conditions is one qualitative aspect that is very important to consider. While you may wish to pay your mortgage early, you may not be able to do so under your present mortgage terms and conditions unless you pay a hefty fine to break the mortgage contract! In such a scenario, a new lender who has zero prepayment penalties and favorable terms will be quite a respite and worth making the consideration.

Bad experience with your current lender: Unfortunately, it is difficult to find people that you can get along easily with, in which case, switching over to a lender who has a better reputation of being more approachable in his / her behavior, is a better idea.

The Cons to switching lenders

You may also need to remember that your mortgage is a contract that will most likely have costs associated with ending it prematurely. These need to be weighed in to assess the net profitability of your new mortgage contract (if you decide to switch your lender).

The first step would be to ask your current lender for a list of all the costs associated with leaving your mortgage. Here are some common costs associated with switching mortgage lenders at renewal (or any other time):

Interest penalty –  Generally, an interest penalty is three months’ worth of interest payments.

Interest rate differential (IRD) – Also a type of interest penalty, it is calculated as the difference between the interest rate on your current mortgage and your lender’s current rate for the amount of time left in the term. It may be worthwhile considering that these fees are usually very expensive.

Appraisal – A new lender will evaluate your property based on the current market. This means there is an appraisal cost to consider. You may request the new lender to cover the assessment cost in which case.

Legal fees – Legal paperwork need to be complete and accurate in mortgages, for which ideally the services of a lawyer will be hired. You may have to be prepared to bear the cost.

Discharge fee – This is the fee for the lender to remove their lien against your property.

Property tax fees – If your lenders pay your property taxes, they may charge an administration fee for the same. However, you can avoid it by paying the same on your own.

You may also need to be mindful of new costs which your new lender may offer to make your switch. While they may be helpful, keep in mind that by choosing to finance the cost of switching, you’re borrowing more and paying more interest.

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