Want to switch lenders at renewal? Here's what you need to know

There are several reasons a homeowner might choose to explore other lending options before renewing their mortgage. The conditions you require may have changed since you first started your term, or you may need a more affordable rate than what your current lender can offer. 

Fortunately, when you switch lenders at renewal, you can often find a better mortgage agreement within your budget, without being subject to the pre-payment penalty that comes with breaking your contract prematurely.  

However, before you transition to a new lender, there are a few key things to keep in mind that can help guide your decision.  

Switching mortgage lenders can save you money 

Perhaps the most common reason homeowners choose to start a mortgage term with a new lender when their contract is up for renewal is to save money long-term. After deciding how long your next term will be, and whether you want a fixed or variable rate, the best thing you can do is compare today’s lowest mortgage rates from different lenders.  

Doing so will allow you to see which lender has the most affordable rate for your remaining principal. The benefit of shopping around before renewal is that you can switch lenders without breaking an existing contract with your current lender and avoid the costly penalty. 

Requalifying for the stress test 

If you do choose to switch lenders at renewal, you will have to pass today’s stress test, which is 5.25% or 2% higher than the interest rate being offered, whichever is greater. Almost all interest rates offered right now will require that you qualify for a new term at your rate plus 2%, as this will be the higher option.  

For example, if today’s lowest five-year fixed rate was 4.59%, you’d have to qualify for the mortgage at 6.59%, which is higher than 5.25%. If you can’t pass this test, you may consider staying with your current lender. Requalifying at a higher rate with a new lender can be tough, which is why your current lender likely won’t offer you a discount at renewal, as they don’t need to provide an incentive to stay with them.  

Not needing to pass a stress test can be incentive enough to stay.  

Fees when switching mortgage lenders 

When you switch mortgage lenders at renewal, you aren’t breaking a contract, so you won’t face a pre-payment fee. But, there are other fees related to starting a new term with a new lender. It’s always a good idea to ask the new lender if they’re willing to cover some or all the fees in order to gain your business. These costs could include: 

• Setup fees (may include discharge, registration, transfer, or assignment fees from your previous lender) 

• Appraisal fee (to determine your property’s value) 

• Administration fees 

Working with a mortgage broker is key 

Exploring renewal options with a mortgage broker can give you a clear idea of whether it makes more sense to switch or stay with your current lender. Skipping the comparison process puts you at a disadvantage, as you’ll likely pass up the only opportunity you have to switch lenders without facing a penalty.  

Once you do your due diligence, you can feel more confident in your renewal decision — and save on your mortgage in the process.