This vs That 8: Renew or Switch Lenders
Michael Hallett • April 28, 2017
Renew
(the mortgage industry meaning): to remain with the current lender by simply signing the renewal letter that comes in the (e)mail.
Switch
(again, the mortgage industry meaning): to move from the existing lender to a different lender without leveraging any additional funds/equity; the outstanding balance remains the same.
Is renewing your mortgage with the current lender the best option, or should you consider switching to a new lender? The answer is provided with some simple math. As mortgage consumers, we want to save as much money as possible, plain and simple.
Seventy percent of borrowers that currently hold a mortgage simply sign the renewal letter they get. Most of the time they are leaving 20 – 40 basis points or 0.20% – 0.40% on the table. This puts millions of dollars back into the pockets of the lenders and their shareholders.
There are times when the current lender does not offer the best market rate or product for your situation. How will you know you are getting the best rate for your scenario? By contacting an impartial Mortgage Broker who works for you… not the lender.
So first things first: contact your Mortgage Broker four months before the term matures to discuss the next term’s strategy. What do the next two, three or even five years look like? This will then lead to an interest-rate discussion. Can there be some money saved?
I have been working with a client over the past couple of weeks as her current mortgage is coming to maturity. Had she just signed at the bottom of the renewal letter she would have been overpaying by 30 basis points.
Current lender offered 2.84% for a 5-year Fixed term (Renew)
New lender offered 2.54% for a 5-year Fixed term (Switch)
Here’s what that looks like. Note the mortgage balance used was $330,000 (25-year amortization). This just happens to be the average mortgage amount in British Columbia.
Monthly Payment Annual Payment Payments Over 5 Years O/S Balance After 5 Years Interest Paid
2.84% $1,534.74 $18,416.88 $92,084.40 $281,194.12 $43,278.52
2.54% $1,484.87 $17,818.44 $89,092.20 $279,529.82 $38,622.02
Total Savings $49.87 $598.44 $2,992.20 $1,664.30 $4,656.50
The biggest saving is in the total interest saved over 5 years. At the end of the day this borrower saved $4,656.50. Guess what she decided to do? Yes, SWITCH lenders.
In this scenario, it will cost the borrower $0 to make a switch. Would you put four 1000-dollar bills, six 100-hundred-dollar bills, one 50-dollar bill, one five-dollar bill, one loonie and two quarters in the fire? No, you would not.
Bottom line, make sure you have a discussion with your independent Mortgage Broker before (potentially) burning thousands of dollars.
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Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
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The weather report was 36 cm of new snow, it was more like 45-50 cm of light deep powder. Insane day of skiing.
Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
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Happy Holidays. Seasons Greetings. Merry Christmas. All the best from Kirstin, Aidan and Michael. Enjoy your family time.
Snow report for today was boot to knee deep in places. Simply an awesome day rippin’ with the kids, I had to show them that I still got it. 📷 credit @jhalskiing
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Extreme tubing, watch until the end. Aidan manages to hold on.
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My sons intro to operating a side-by-side on his own. Watch to the end.
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This would have been a fun stunt once upon a time!
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This is a great start to the day!
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Wood to wood gap in Whistler.
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Saratoga Beach fire.
Canadian tuxedo.
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Distancing myself from the real world!
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Does anybody need or want any firewood? It’s free...you come pick it up.
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Thinking of Buying a Home? Here’s Why Getting Pre-Approved Is Key If you’re ready to buy a home but aren’t sure where to begin, the answer is simple: start with a pre-approval. It’s one of the most important first steps in your home-buying journey—and here's why. Why a Pre-Approval is Crucial Imagine walking into a restaurant, hungry and excited to order, but unsure if your credit card will cover the bill. It’s the same situation with buying a home. You can browse listings online all day, but until you know how much you can afford, you’re just window shopping. Getting pre-approved for a mortgage is like finding out the price range you can comfortably shop within before you start looking at homes with a real estate agent. It sets you up for success and saves you from wasting time on properties that might be out of reach. What Exactly is a Pre-Approval? A pre-approval isn’t a guarantee. It’s not a promise that a lender will give you a mortgage no matter what happens with your finances. It’s more like a preview of your financial health, giving you a clear idea of how much you can borrow, based on the information you provide at the time. Think of it as a roadmap. After going through the pre-approval process, you’ll have a much clearer picture of what you can afford and what you need to do to make the final approval process smoother. What Happens During the Pre-Approval Process? When you apply for a pre-approval, lenders will look at a few key areas: Your income Your credit history Your assets and liabilities The property you’re interested in This comprehensive review will uncover any potential hurdles that could prevent you from securing financing later on. The earlier you identify these challenges, the better. Potential Issues a Pre-Approval Can Reveal Even if you feel confident that your finances are in good shape, a pre-approval might uncover issues you didn’t expect: Recent job changes or probation periods An income that’s heavily commission-based or reliant on extra shifts Errors or collections on your credit report Lack of a well-established credit history Insufficient funds saved for a down payment Existing debt reducing your qualification amount Any other financial blind spots you might not be aware of By addressing these issues early, you give yourself the best chance of securing the mortgage you need. A pre-approval makes sure there are no surprises along the way. Pre-Approval vs. Pre-Qualification: What’s the Difference? It’s important to understand that a pre-approval is more than just a quick online estimate. Unlike pre-qualification—which can sometimes be based on limited information and calculations—a pre-approval involves a thorough review of your finances. This includes looking at your credit report, providing detailed documents, and having a conversation with a mortgage professional about your options. Why Get Pre-Approved Now? The best time to secure a pre-approval is as soon as possible. The process is free and carries no risk—it just gives you a clear path forward. It’s never too early to start, and by doing so, you’ll be in a much stronger position when you're ready to make an offer on your dream home. Let’s Make Your Home Buying Journey Smooth A well-planned mortgage process can make all the difference in securing your home. If you’re ready to get pre-approved or just want to chat about your options, I’d love to help. Let’s make your home-buying experience a smooth and successful one!
If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value. Anti-money laundering Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase. Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member. To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means. Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account. Financial suitability Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property. Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely. The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk. Downpayment establishes the loan to value (LTV) Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation. But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past. You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV. All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud. So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.
