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Apr 11, 2024reading time icon7 min

Everything to know about mortgage transfer

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Everything to know about mortgage transfer
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Is your mortgage term coming to an end? Are you unhappy with the conditions of your loan? Did you just buy your home and need to move? These are just some of the situations that can lead to a mortgage transfer.

What is a mortgage transfer? How does it work? What are the benefits? Can you switch mortgages at any time? Find the answers to these questions and more in the following sections.

What is a mortgage transfer?

Transferring your mortgage generally refers to changing lenders, especially when your term is up for renewal. If done at the right time, it can allow you to improve your repayment modalities without changing the amount borrowed.

Most mortgages in Quebec have a five-year term. This means that every five years, you can renew your loan with your current creditor or change financial institutions. This is the ideal time to compare different offers to make sure you get the best possible repayment terms.

By transferring your mortgage to a new lender, you may be able to:

  • Get a lower interest rate;
  • Change your payment frequency;
  • Improve your prepayment terms;
  • And much more.

Remember, you don't have to stay with your current lender. In fact, it's in your best interest to shop around.

Lenders shaking hands

How do I transfer my mortgage from one bank to another?

The first step in changing mortgage lenders is to compare other offers and see if they are more attractive than your current lender's terms. Start shopping early so you have plenty of time to find the compromise that works best for you.

Are you happy with your current terms? Can you get a lower rate? Could another bank offer you more flexibility? These are just some of the questions you should ask yourself as you begin your search.

Have you found an interesting offer? The second step is to submit a formal application to the new mortgage lender. The lender will then evaluate your application based on several criteria, including your credit score, credit history and income. Once approved, you'll be able to negotiate your terms.

To change lenders, you'll also need to get a payment statement from your current lender. This document shows the amount of your mortgage, the renewal date, and any other relevant information. You'll need to show it to your new lender.

Finally, you'll need to pay any fees associated with transferring your mortgage.

Documentation and requirements for changing lenders

To successfully change mortgage lenders, certain criteria must be met and certain documents must be consulted. Even if you've already purchased your home, switching from one lender to another is considered a new purchase.

This means you'll need to qualify with the new lender. Before approving your application, they will look at various aspects of your finances, such as your credit file, as mentioned in the previous point. Please note that the criteria used by the new lender to approve your loan may be different from those used by your original lender.

You'll also need to provide several documents, including:

  • A copy of your mortgage renewal letter from your current lender;
  • Proof of earned income;
  • Proof of title and title insurance;
  • Property tax statement;
  • Etc.

These documents may vary from bank to bank.

Lender counting money

What are the costs of transferring my mortgage?

While transferring your mortgage from one lender to another can offer some interesting benefits, it also comes with its share of costs. In some cases, the out-of-pocket costs of transferring can be higher than the anticipated savings. So be sure to weigh the pros and cons of your decision before proceeding.

Your out-of-pocket costs will vary depending on your situation and your financial institution. However, here are some examples of the fees you may pay:

  • Transfer fees: cover the cost of transferring your mortgage from one bank to another.
  • Recordation fees: cover the cost of registering the new mortgage.
  • Release fees: cover the release and termination of the existing mortgage. The amount of these fees is usually stated in your contract.
  • Appraisal fees: to confirm the value of your property.
  • Legal fees: cover the preparation and signing of legal documents.

How do I avoid paying a mortgage penalty?

You should be aware that some lenders will pay or waive some or all of the fees to encourage homeowners to transfer their mortgages. Don't hesitate to talk to the bank of your choice to find out what their policy is.

A tip for a less expensive transfer: wait until your mortgage is nearly over. By transferring your mortgage early, you run the risk of incurring unnecessary penalty fees, which can be very costly and wipe out any savings you may have enjoyed.

Big brown house

Can I transfer my mortgage to a new home?

In addition to changing lenders, transferring a mortgage also refers to moving your mortgage to a different home. This option is also called mortgage porting.

Porting involves transferring the terms of the loan on your current property to the new home you've purchased. This includes the interest rate, amortization, and payment terms, all of which are retained and applied to the new home.

This type of transfer can be advantageous if your current financing terms are better than those you would receive by closing a new deal.

However, not all lenders offer this option, and not all mortgages are transferable. To make this type of change, your mortgage deed must mention the possibility of a transfer. Most variable-rate mortgages are not.

What's more, the time allowed is very short. Most lenders who will accept a transfer only offer between 30 and 120 days to transfer.

Finally, there may be a cost associated with this type of change. Ask your lender or broker about the terms and conditions that apply to your situation.

Can a mortgage be transferred to a buyer?

Is your mortgage not transferable? In some cases, it may be possible to assign your mortgage to the new buyer of your property through an assumption agreement. This is referred to as a mortgage assumption.

This can be an attractive alternative if the buyer can obtain better terms by assuming your mortgage than by taking out a new loan. For you, this transfer allows you to get out of your contract without incurring penalties or costly fees.

Some financial institutions in Canada accept this solution, but not under any conditions. The buyer must qualify for the loan, of course, and not all types of loans can be transferred in this way.

This decision also comes with its own set of advantages and disadvantages that you need to be aware of before making your choice. Check with your broker or bank for more information.

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