What you need to know about switching your mortgage

When mortgage interest rates are low, you may be able to take advantage and change up your mortgage, including potentially switching lenders. Doing a mortgage switch at the right time can save you thousands of dollars on your overall home cost and help you pay off your mortgage faster. Here's what you need to know before making the switch.

Typically, standard mortgages have a maturity date of five years. Every five years, you can either renew your mortgage term with your existing lender or switch to a new lender. Switching your mortgage can change your interest rate, prepayment options and your payment frequency, but it can’t change how much you pay for your mortgage.

Doing a mortgage switch to a lender with a lower interest rate can save you money on your monthly payment and the amount you pay in total interest over the life of your loan. However, there are a few potential fees you need to be aware of when switching your mortgage. Make sure your new lending company is upfront and transparent about all fees. Note that the type and amount of fees that you may need to pay will depend on your lender and your mortgage situation.  

• Mortgage discharge fee: To discharge your mortgage, also known as ending your current mortgage agreement, your existing lender might charge $0-$400. If your lender is a bank, this fee should be stated in your mortgage contract.
• Appraisal fee: It typically costs between $150-$500 to have the property's value assessed. Even though you already paid an appraisal fee when you first bought the home, you will need to go through this process again when switching lenders.
• Assignment fee: This fee covers the switch from your old lender to your new lender and can cost between $5-$395.
• Legal fee: Mortgages require legal paperwork, and a lawyer is needed to complete the process. Legal fees can vary depending on the type of mortgage you have.

As an incentive to switch, some lenders might waive or cover the cost of some or all of these fees. Asking a lender to waive the appraisal fee for example may save you a few hundred dollars. You might also be facing a penalty from your previous lender when you switch. 

If you’re thinking about switching your mortgage, it’s important that you choose the lender that best suits your financial needs. With Scotiabank’s online mortgage hub, eHOME, you can switch your mortgage all online without having to visit a branch. There are valuable benefits available for those choosing to switch via eHOME - preferred mortgage and ScotiaLine® Line of Credit rates, savings of up to $300 on appraisal fees, cashback to help cover the switch costs and the dedicated support of an expert mortgage underwriter. 

If you want to avoid paying fees for transferring your mortgage loan to a new bank, then it's important to know when your mortgage maturity date is. It's a good idea to start shopping for a new lender a few months before your mortgage term ends. This will give you plenty of time to shop lenders and rates for a better mortgage option for your needs.

If you switch mortgages before your mortgage is up for renewal, you can face a penalty — up to three months of interest payments on the amount you owe or the interest rate differential (IRD), which is the difference between your interest rate today and the rate the lender can charge you upon renewal. For most switches, the penalty fees will negate any interest savings received from switching to a lender with a lower interest rate, so it's best to wait until your mortgage term is about to mature before you make a switch.

Even if you’ve lived in your home for many years, when you switch to a new lender, your switch is viewed as a new home purchase. For this reason, you need to be sure that your credit score and approval rating are high enough to qualify for the best rates and be approved by the new lender. Though it will depend on the lender, here are the types of documents you’ll need to submit a mortgage application for the switch:

• Copy of mortgage renewal letter from the existing lender
• Property tax bill
• Proof of property insurance
• Proof of income with employment letter and payment stubs

With Scotiabank's eHOME, you can be pre-approved, search for a home, switch to Scotiabank and get mortgage approval all in one place, all online¹ and can be approved within minutes! 

Many lenders charge a prepayment fee for homeowners who try to pay more than the monthly payment during the mortgage's closed term. When the mortgage is in an open term, a period when you can choose to renew with your current lender or switch lenders without penalty, you can also add on prepayment options.

If your new lender offers prepayment privileges of increasing your monthly mortgage payment by 10-20%, you can save a few thousand dollars in interest payments during the years that you're paying off your loan. Of course, increasing your monthly payment will mean you have to budget for a higher mortgage each month, but this move can save you in the long run.

If you’re thinking of switching your mortgage, then now is the time to start comparing rates and lenders. Make the search easier with Scotiabank's online mortgage hub, eHOME. You can search for new homes with eHOME's Realtor.ca integration, compare rates and get pre-approved for a competitive rate within minutes.