Between climbing interest rates and a new financial stress test, it’s about time we had some good news on the mortgage front. Well, here it is. If you are one of the nearly half of homeowners whose mortgage is up for renewal this year, some recent changes to Canada’s mortgage rules could end up saving you some pretty significant coin.
Here’s what happened.
In October of 2016, government regulations prevented refinances from being default insured but still allowed transfers to continue to be insured. The difference between a refinance and a transfer is simple – a transfer just lets you switch lenders in order to get a better deal. A refinance on the other hand, either increases the amount of your mortgage or the amortization – or both. Since that time, lenders could not insure mortgages which had been refinanced – and that meant less competitive rates. For example, mortgages with default insurance can typically get rates that are at least 20 basis points better. On a $200,000 mortgage, that means a savings of nearly $1900 over a five year period.
On April 30th however, Canada’s default insurers came out with an announcement that can potentially mean big savings for you. They have officially ended the prohibition against default insurance on transfers of previously refinanced mortgages. This is for all mortgages provided the outstanding balance does not increase when the transfer is made and that have an amortization period of no more than 25 years.
In short, if you have refinanced your mortgage in the past, and you now wish to change lenders in order to get a better interest rate, you can.
Here are a few tips if you’re thinking about changing lenders:
1. If you already have default insurance, you’ll be able to get the best rate.
2. Many lenders now allow you to switch both your mortgage and secured line of credit to them to get a better rate. You’ll likely have to pay some legal and appraisal fees, but the amount you can save may be well worth it.
3. If you have a regular (standard charge mortgage), a new lender may pick up your legal and appraisal fee if you switch to them.
4. Some lenders will allow you to roll your legal and appraisal costs into the new mortgage so you won’t be out of pocket for the extra fees.
5. If you are transferring an insured mortgage that you got prior to October 17,2017 some lenders will waive the financial stress test meaning that you only have to prove that you can afford their current rate.
6. Mortgage brokers know which lenders will waive the stress test, and which ones will pick up your legal and appraisal fees and which ones will let you roll those fees into your new mortgage.
If your mortgage is coming up for renewal, don’t automatically assume that the offer from your current lender is the best. These new rules may mean you can get a much better deal if you shop around. Call me today to learn more.