RENEW, REFINANCE, TRANSFER

What's the difference? What's the BEST options?

The Biggest Mistake of First-Time Home Buyers

Did you know that nearly 60% of homeowners accept their new renewal rate from their banks without exploring different options? This is one of the most significant mistakes for homeowners! When your term is up, it presents one of the prime opportunities to explore other competitive lenders, as they may offer superior rates and benefits!

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The Key Difference?

Renewing: Renewing your mortgage means entering into a new agreement with your current lender to extend your existing mortgage loan after its initial term expires. This often means a new rate and term, but everything else within the existing mortgage stays the same

PROS

Same lenders - easy and quick process
Do not have to re-qualify

CONS

Potentially uncompetitive rate
No financial assessment and support
No option for equity take-out

Refinance: Refinancing is the process of replacing an existing mortgage with a new loan, typically with different terms and conditions. This can be done with the same lender or by switching to a new one

PROS

Option to switch lenders
Get a competitive interest rate
Option to take out equity
Usually able to spread mortgage balance over a longer amortization (Lower monthly payments)
Available for special promotions when applicable (Ex: Cashback, promo rates, etc.)

CONS

Potential Closing Costs (Appraisal, lawyer)
Payout penalty (If your term isn't over)

Transfer: A mortgage transfer (Also called a mortgage switch), involves moving your current mortgage from one lender to another. While all the terms of your mortgage are reset when you refinance, with a mortgage switch, the only things that change are your term and interest rate.

PROS

New Lender - possibility of better service
Lower interest rate

CONS

Closing costs (Appraisal, lawyer, etc.)
Unable to take out additional equity
Not available option for all lenders

The Difference: In short, renewing is continuing your mortgage (No mortgage balance change) with the same lender, with an updated rate. Transfers are similar since the mortgage balance stays the same, but you're switching lenders which includes the lenders best rate. Refinancing includes getting a whole brand new mortgage with a new lender, and paying off the old existing one.

The best option depends on the homeowner's financial situation, rates given by both the existing and new lender, and the amount of time a homeowner would like to put in to save the most money.

Example: If your current bank is giving you a renewal rate of 5.00% on a $500k mortgage; Whereas, another lender offers you 4.50% + $2,000 cashback + appraisal reimbursement

5.0% @ $500k w/ 20 year remaining amortization = $3,286/month

4.50% @ $500k w/ 20 year remaining amortization = $3,152/month

Difference = $124/month x 60 months = $8,040 over the course of a 5 year term.

$8,040 - $1,500 (legal fees) + $2,000 (cashback) = $8,540 in savings

Questions to Consider

Q: Are you considering taking out equity from your property at this time?

If your response is YES, refinancing emerges as a prime choice. Unless you possess a Home Equity Line of Credit or contemplate a second position mortgage, refinancing stands out as one of the few avenues for leveraging equity from your property. It's worth noting that mortgages boast some of the most favorable interest rates among loans. Backed by tangible security, banks extend lower rates compared to unsecured loans like credit cards. Conversely, if your answer is NO, opting for renewal or transfer may be the optimal route. I strongly advise a thorough review of interest rates with your mortgage professional to secure the most favorable rate.

Q: Are you happy with your bank? Are they offering you the best rate and experience?

If your answer is YES, continuing the renewal process with your current lender might be the suitable course of action. If you are confident in securing a competitive interest rate and have advantageous features meeting current and future needs (such as pre-payment benefits or portability), additional steps may not be necessary. If any of your answers are NO, exploring a mortgage transfer could be the optimal solution. For instance, if a lower rate results in savings exceeding the closing costs, the effort to switch may be justified. If your current lender lacks portability, and a future move is anticipated, transferring could prevent costly pre-payment penalties. Consult with your mortgage professional to assess whether a mortgage transfer aligns with your financial strategy.

Q: Do you have enough time to renew?

Ensure to consult with your mortgage professional 30-120 days BEFORE your mortgage comes up for renewal. This timeframe allows your mortgage professional ample opportunity to identify the most suitable lender, streamline documentation for approval and mortgage transfer, and negotiate the most favorable rate on your behalf.

Get Your Best Options Now

ot sure whether to renew, refinance, or transfer your mortgage? I'll break down every option so you can make the best-informed decision that fits your needs.

Get In Touch

(604) 353 - 5809

Brandon.Nishi@Cleartrust.ca