😶‍🌫️What is the Difference Between Renewing, Refinancing and Switching a Mortgage?🤝

 

Mortgage terminology can get confusing at times, so it’s not uncommon for people to misunderstand the terms. Often someone will say they want to refinance their mortgage when they are really looking to transfer it. Or transfer it when they are looking to port it. It can get confusing at times.

While a seasoned mortgage professional should be able to understand your requirements, it can also lead to you being provided with incorrect information. For example, if you ask a mortgage agent about their lowest rate for refinancing, they may answer the question without first asking more about your needs. As refinancing rates can be higher than other transaction types, it’s possible that a lower rate may have been available.

So what is the difference between the different transaction types?

 

Mortgage Renewal

Your mortgage is up for renewal when you approach your maturity date…also known as your renewal date. This is when your current mortgage contract ends, which means your mortgage becomes due and payable in full. Unless you’ve recently come into a significant amount of cash, paying the mortgage off at this stage is not possible for most people. Your mortgage lender will then present you with your options to renew the mortgage with them.

As the name implies, a mortgage renewal is simply renewing your mortgage with your current lender. The biggest mistake that you can make is to sign the renewal document without first looking into other options. We all lead busy lives, which can make it tempting to sign the form and send it back to your current lender. 

It’s quick. 

It’s easy.

It’s the path of least resistance.

It can also be a very expensive choice.

This is why it’s important to look into your options to ensure you’re being offered a competitive rate to renew your mortgage with your current lender. Your current lender may be competitive… but you can often save thousands by switching your mortgage to another lender.

 

Mortgage Switch

There is a good chance that you’ll be able to find a lower rate with another lender. This is where you would switch your current mortgage balance and remaining amortization over to another lender. This is also known as a mortgage transfer.

A title insurance company such as First Canadian Title (FCT) or Fidelity National Financial (FNF) facilitates the transfer of funds from one lender to the other. The costs are generally picked up by the new lender, however, this is less common if your mortgage was registered as a collateral charge.

For most transfers, the only fee involved is the discharge fee from your current lender. It can range anywhere from $0 to $450 depending on your province. In Ontario, the discharge fee is usually between $300 – $400. In BC it’s usually around $75 and in Alberta and Quebec it’s $0.

While there are a small number of lenders who will cover the discharge fee, most will not. The fee would get added to the new mortgage, so you shouldn’t have any out of pocket costs at closing.

The maximum amortization will be what you have remaining based on years passed on the calendar. For example, if you started with 25 years and five years have passed, then your maximum amortization will be 20 years.

If you made use of your prepayment privileges or were on an accelerated biweekly or weekly payment schedule, then your effective amortization would reflect fewer years remaining. You can either go with the lower amortization or you can move it back up based on years passed. 

On a mortgage transfer, you can always reduce your amortization but cannot increase it, nor can you increase your mortgage balance.

 

Mortgage Refinancing

If you want to increase your amortization up to 30 years to reduce your payments, or if you are looking to take equity out of the property, then mortgage refinancing would be required. While the process is similar to a mortgage transfer, it falls into a different pricing category. This means a higher rate may apply.

While the transfer fees are generally covered on a mortgage switch, the borrower is responsible for the cost when refinancing. The fee is generally around $800, however, if you choose to use a real estate lawyer instead, then the fee would be higher.

Why would someone use a lawyer if the costs are higher? 

It takes roughly 30 days to close a refinance, but it’s possible for lawyers to complete the transaction in half the time. If you’re in a rush for the money, then closing through a lawyer can expedite the process.

 

Mortgage Porting

While a mortgage transfer involves switching your current mortgage to another lender, porting involves moving your current mortgage to another property. The lender does not change in this case.

Your existing mortgage rate, balance and term will remain intact. If you need to borrow additional funds to complete your new home purchase, then your lender’s current rate will apply to the new funds only. When the term on the original mortgage expires, the new rate would apply to the entire balance.

This is all precalculated upon approval and everything would get blended into a single rate and payment. This is known as a blended rate mortgage.

Note that porting is not always available, nor does it always make sense to do so. It all comes down to what is going to save you the most money overall.

 

Conclusion

Using the wrong terminology when discussing your mortgage options can lead to the wrong information. This can affect the rate you’re quoted, or the accuracy of the advice provided to you.

The above information should help you with the right lingo, which will allow you to discuss your mortgage requirements with precision.