Mortgage Basics

Switching Mortgage Providers: Should I Make The Switch?

Switching Mortgage Providers: Should I Make The Switch?
Written by
  • Ashley Howard
| 27 March 2024
Reviewed, 27 March 2024

Table of contents

    An important decision every borrower will face during their mortgage is whether to switch to a different mortgage provider or stick with their current one. You may be considering switching to save time and money on your mortgage. Shopping around and switching lenders can be a smart financial move if your current lender cannot be competitive with their offerings. 

    Several factors may impact your choice to change mortgage lenders. These can range from finding a lower interest rate to looking for more favourable terms and conditions that better fit your financial circumstances or objectives. Comparing and understanding the process of switching your mortgage, possible expenses, and the advantages of doing so before making the switch will help you determine whether switching to a new mortgage provider is right for you.

    Key Takeaways

    • Switching your mortgage could result in lower interest rates or better terms and conditions. 
    • Switching to a different lender will require that you fill out a new mortgage application and satisfy all eligibility requirements of the new lender. 
    • Switching your mortgage may involve additional expenses depending on the lender, how the mortgage is registered, and your current mortgage term.

    Reasons for Switching Mortgage Providers

    There are several reasons for switching your mortgage provider. Many individuals with mortgages change lenders to obtain better mortgage options, lower interest rates, or more favourable terms and conditions. 

    Lower Mortgage Rate

    The main reason you may switch mortgage lenders is to get a lower interest rate. If other lenders offer better rates than your current lender, switching your mortgage could result in significant interest savings over your mortgage term.  

    Interest costs make up a significant portion of your overall mortgage expenses over the life of the mortgage. Switching to a new lender for a lower rate can reduce mortgage interest costs and lower mortgage payments. This allows you to allocate those savings toward other savings or financial goals or use the savings to pay more of your mortgage principal and pay off your mortgage faster. 

    Better Terms and Conditions

    Some mortgages may limit your options for making prepayments or charge hefty penalties for making too many additional prepayments over the limits. Switching lenders for more favourable terms and conditions like higher prepayment privileges can help you avoid penalties, put more toward your mortgage principal and become mortgage-free faster. 

    Prepayment Privileges 

    Most lenders offer options to increase your mortgage payments or make a lump sum toward the principal of your mortgage each year. This amount is based on a percentage of your remaining mortgage balance at the beginning of your term. However, if you exceed this limit, you will be subject to prepayment penalties. Using these prepayment privileges can be beneficial in terms of saving time and money on your mortgage. 

    Benefits of Switching Lenders

    Switching lenders can result in significant cost savings. When switching, opting for a lower interest rate can lead to substantial cost savings during your mortgage term. It’s generally recommended to wait until your mortgage term ends before considering a switch to maximize cost savings and avoid penalties for ending the term early. 

    For example, you purchased a home for $500,000 5 years ago, made the minimum downpayment of $25,000, and have a fixed interest rate of 2.55% with a 25-year amortization. Your current monthly mortgage payments are around $2,225, and as your first 5-year term is ending, you owe approximately $418,532 on the mortgage you will need to renew at a new rate.  

    Your current lender is offering to renew your mortgage for 5.98%; meanwhile, you shopped around, and another lender offers you 4.89% if you switch. The chart below outlines how switching your mortgage from your current lender to a new one for a better rate can help you save money during your next mortgage term. By switching your mortgage for a better rate, you could save approximately $21,529 over your next term and have a lower remaining mortgage balance when you need to renew again in 5 years. 

    Your Lender Switching Lenders
    Interest Rate 5.98% 4.89%
    Monthly Mortgage Payments $2,976 $2,725
    Total Term Interest Paid  $114,815 $93,286
    Total Term Principal Paid  $63,748 $70,242
    Remaining Mortgage Balance  $354,784 $348,290
    Total Term Interest Savings by Switching  $21,529

    Your mortgage agreement will specify any prepayment privileges, such as increasing your mortgage payments or making a lump sum payment. However, most mortgages limit the amount you can prepay each year, so it’s advisable to consult with your lender before utilizing this feature to avoid any penalties. 

    Switching lenders to take advantage of better prepayment options can be beneficial in terms of time and cost savings. By increasing your payments or making lump sum payments toward the principal, you can reduce the interest you pay and shorten the amortization of your mortgage. 

    Consider that you agreed to your current lender’s renewal offer and recently received a significant bonus or inheritance partway through your 5-year term. Now, you want to use this extra money toward your mortgage. Your lender allows a 10% prepayment every year. You can allocate $41,853.20 toward your mortgage principal using this prepayment option. This will save you $6,643 in interest over the term and shorten your amortization by approximately 3 years. 

    Opting for a lender with greater prepayment privileges would allow you to prepay a larger amount of your mortgage principal, resulting in even greater savings in both cost and time. The following shows how switching lenders for better prepayment options can help you save time and money on your mortgage. Options include prepayment privileges of 10%, 15%, and 20%.

    Prepayment Privilege of 10% Prepayment Privilege of 15% Prepayment Privilege of 20%
    Prepayment $41,853.20 $62,780 $83,706
    Total Term Interest Paid $108,172 $104,851 $101,529
    Total Term Principal Paid $112,244 $136,492 $160,739
    Remaining Mortgage Balance $306,288 $282,040 $257,793
    Amortization (Time) Savings 3 years 4 years 4 months 5 years 6 months
    Total Term Interest Savings $6,643 $9,964 $13,285

    Steps to Switch Mortgage Provides 

    The procedure for changing mortgage lenders follows a similar process as obtaining a new mortgage. 

    Find a Lender

    Begin by searching for a lender that offers better rates, terms, and conditions. You can research and compare rates or enlist the help of a mortgage expert who can guide you through the process and, based on your needs, determine the best mortgage solution. 

    Mortgage Application Submission

    Once you’ve identified the most suitable mortgage solution, you must complete a mortgage application. If you decide to switch lenders, this will be treated as a new mortgage, and you will have to go through the entire qualification process with the new lender. This will typically involve providing proof of ownership such as a property tax bill, property insurance, and proof of income through an employment letter, pay stubs, T4s or NOA. Additionally, you must provide a copy of your current lender’s mortgage statement or renewal offer. 

    Consult with a Mortgage Expert

    You must communicate with your mortgage expert so that they can devise a suitable solution that aligns with your financial situation and mortgage needs. In this discussion, the mortgage expert will verify any missing information not included in your documents and take note of it for the underwriter. These notes will assist the underwriter in understanding your needs and ensure that the lender provides the most suitable mortgage. The submission notes will also address any inquiries relating to your credit report and employment history. 

    Get Approval

    After the mortgage underwriting process, your new lender will approve and initiate the transfer process. Depending on how the mortgage is registered on the property’s title, this process may require the involvement of a notary or solicitor.  

    Your mortgage expert will analyze your current mortgage statement and inform you about the necessary next steps and if there are any costs involved. After reviewing your mortgage offer, you will sign the agreement and initiate the transfer process. 

    Transferring the Mortgage

    The lender will give instructions for transferring your mortgage to your notary or solicitor. The notary or solicitor will assist you in paying off and discharging the current mortgage and transfer the remaining balance to the new lender. 

    Your current lender should supply you with a statement that details the remaining amount you owe on your mortgage, the renewal date and any other significant details about the mortgage. To finalize the transfer, you will be required to submit this payout statement to your new mortgage lender for processing. 

    The final step involves costs as you transfer the mortgage to the new lender. The switch requires payment of fees to discharge the mortgage from your current lender and additional fees for an appraisal, assignment, and legal fees to the new lender. However, certain lenders may offer to waive or cover some of these costs to attract your business. 

    Depending on how the mortgage charge is registered, your loan-to-value ratio, or the province where your home is located, you may be required to cover transfer and appraisal fees. These fees may also depend on whether your mortgage is insured. 

    If you decide to change lenders before the end of your term, you should consider the potential for penalties for terminating your mortgage early. These penalties may vary depending on the method of calculation used and can be significant. Generally, penalties are determined by either the interest rate differential (IRD) or 3 months’ interest, whichever is greater for fixed rates, and 3 months’ interest for variable rates. 

    Fees Typically Incurred When Changing Providers

    Although switching your mortgage for a better rate or more favourable terms can result in cost savings, it’s crucial to verify if these savings will be greater than any fees you may incur. Typical fees that may apply include:

    Mortgage Discharge Fee

    You may be required to pay a mortgage discharge fee to discharge the mortgage from your current lender. According to federal regulations for financial institutions (FRFI), this fee must be disclosed in your mortgage contract. The specific amount to be paid will vary depending on the lender, although the province or territory may set a maximum fee in certain situations. Typically, this fee ranges from $400. 

    Assignment Fee

    The assignment fee includes transferring mortgage ownership from one lender to another. Your current lender may charge this fee, ranging from $5 to $395. 

    Appraisal Fee

    The appraisal fee includes the cost of evaluating your property’s value. Initially, this fee may have been paid when you acquired your mortgage. If you decide to switch lenders, you may be required to repeat this process and pay a fee ranging from $300 to $500. However, the amount varies depending on your loan-to-value ratio and could potentially be covered by your new lender. 

    Legal Fees

    With collateral charge mortgages, a lawyer may need to handle the legal paperwork for switching the mortgage. This fee can range from $250 or more, depending on the specifics of the mortgage. In some cases, the new lender may cover this cost but may increase the mortgage rate slightly to compensate. 


    If you decide to switch to a new lender and break your mortgage during the term, it will be deemed a mortgage refinance. You will be required to pay penalties for terminating the mortgage term early. The penalty amount will vary based on the type of mortgage you have calculated as either an interest rate differential (IRD) or three months’ interest. 

    Is Switching Mortgage Providers a Simple Process?

    Switching mortgage providers is typically straightforward but may become more complex if you have a collateral charge mortgage. Certain lenders may not approve of the collateral charge if it is used to secure other debts, or they may require that you settle all debt obligations tied to it and view this as a refinance at a higher rate.

    Frequently Asked Questions

    Can I switch my mortgage and change the amount or amortization period?

    If you want to change the mortgage amount or amortization, you must refinance the mortgage. This requires you to break your existing mortgage contract but provides the flexibility to make changes to the mortgage.

    Before my mortgage term ends, can I switch mortgage providers?

    Switching mortgage providers can be done anytime; however, switching before the end of your term is considered breaking your mortgage. This would require you to refinance the mortgage and incur additional costs, which could be higher fees and penalties than if you were to wait until renewal and switch at the end of your mortgage term.

    Will I pay a penalty for switching lenders?

    If you are switching lenders at the end of your mortgage term, there will be no penalties, though you may be required to pay some fees to switch the mortgage to a new lender. If you switch before the end of your current term, you will pay a penalty for breaking the term early in addition to the fees to move the mortgage.

    Final Thoughts

    Switching to a different mortgage provider can be a great way to reduce mortgage interest costs. Switching at the end of your mortgage term is typically more economical unless the potential savings from securing a lower rate or utilizing better prepayment privileges will surpass any fees and penalties for breaking the mortgage early. 
    Are you ready to make the switch and save? Compare and Save on your next term with Compare Mortgages.