If you’re renewing your mortgage or switching your mortgage company, I have great news!  I have some money-saving updates to Canada’s mortgage rules that could save you some money when comparing mortgages.

For starters, here’s what changed to a mortgage that you had originally put under 20% down on when you bought your house.

In October of 2016, the government prohibited refinances from being insured by the mortgage default insurers, CMHC, Genworth and Canada Guaranty if the mortgage risk was being increased. For various reasons refinances are regarded as an increased risk that could potentially hurt the insurers and the wider housing market.

What that means is that if you bought a $300,000.00 house 5 years ago and can switch or transfer your mortgage to a new default insured lender for a better rate. Your mortgage would still be insured and eligible for the best discounted mortgage rate available by your new lender.

Now You Can

All three of Canada’s default insurers officially announced an end to this costly prohibition. Canada Guaranty, for example, stated:

“After additional consultation with the Department of Finance and the other mortgage default insurers, we have received clarification that if a prior uninsured loan has already been advanced with an Approved Lender, that loan may be switched to another Approved Lender and insured, regardless of the loan originally being a refinance, purchase or having an amortization greater than 25 years.”

Canada Guaranty explains that this is possible “provided the amount of the outstanding balance is not increased at the time of transfer. Also, the amortization period does not exceed the lesser of the remaining amortization or 25 years.”

Therefore, if you refinance your mortgage and switch lenders, you can get access to Canada’s very best rates (which are insured rates). On the average existing $200,000 mortgage, 20 bps of rate savings keeps almost $1,900 in your pocket over five years.

With that being said, here are seven more tips to switching lenders:

  1. If your mortgage is already insured at the time you changed lenders, you’ll get the lowest rates of all.
  1. Some mortgage lenders will allow you to switch a mortgage and secured line of credit (a.k.a. a “collateral charge”) to a new lender, some don’t. You’ll often have to pay about $1,200.00 in legal, appraisal and discharge fees to do this. However,  if you can save more than that in interest, you’re still ahead.
  1. If you have a regular (Standard Charge) mortgage and switch lenders, your new lender will usually pick up the legal and appraisal fee with a three-year term or longer. You will still be responsible for your old lender’s “assignment” fee (about $250 or more in most provinces).
  1. Here’s a simple mortgage rate comparison calculator to see if switching lenders will save you more than your closing costs.
  1. Some lenders will allow you to include up to $3,000.00 of closing costs into the new mortgage (even if you don’t refinance). That way, you don’t have to pay out of pocket for things such as appraisal fees, discharge fees, and mortgage penalties.
  1. If you switch lenders with an insured mortgage that you got before Oct. 17, 2017, “the mortgage rate stress test requirement does not apply,” CMHC says. In other words, some lenders will make you prove that you can afford payments based on their discounted five-year fixed rate (e.g., 3.19 percent) instead of the Bank of Canada’s posted five-year fixed rate (e.g., 5.34 percent). Mortgage brokers know who these lenders are.
  1. If your property is valued over $1-million-they cannot be default insured. But if you switch a mortgage on a home that was worth less than $1-million, you may still be able to get insured rates. However, the home must be insured. Also,  the property value must rise to more than $1-million.

These “escape clauses” will result in big banks losing more insurable customers at renewal. The reason is that the values of homes escalated over the years. Therefore, as more and more people refinance their debt, those mortgages are no longer insured.  These are borrowers who might have too much debt to include in their mortgage. Thus, they won’t qualify under the Office of the Superintendent of Financial Institutions’ new uninsured mortgage stress test. In other words, that rule could keep about one in 10 borrowers at the mercy of their bank. The reason is that they can no longer switch lenders to save money.

Right now, non-bank lenders are experiencing an increase in their transfer (“switch”) mortgage applications. Non-bank lenders are mortgage broker lenders.

If you need some help navigating through these options or need some advice, please contact me at devonjones@sunlitemortgage.com or 1-877-385-6267

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