When to consider switching your mortgage

Is it time to make a switch, or should your mortgage stay put? With so much information out there, it can be hard to decide — let alone understand the difference between renewing, refinancing, switching and blending and extending. So, let’s define each of those terms:

• Renew: Unless you pay your entire mortgage balance within the term, you’ll have to renew. Most people need multiple terms to pay off their loan. This is an opportunity to look for a better rate or any available offers!
• Refinance: When you choose this option, you pay off your existing mortgage by replacing it with a new one. You might refinance your mortgage to get a better rate or terms, consolidate debt or pay off your loan faster.
• Switch: Just like it sounds, switching your mortgage means moving it from your current lender to another one. Unlike refinancing your mortgage, the only things that typically change are the interest rate and the term.
• Blend and extend: If you blend the mortgage rate from your existing fixed-rate mortgage with today’s rate, it creates a new rate and balance. For example, if you have two years left in a five-year term, you could blend your existing rate with today’s negotiated rate and extend it into a new five-year term.

Switching your mortgage is easier than you think and it’s also much easier than getting your first one! These reasons may help you decide if switching is right for you.

It's important to know that if you switch your mortgage during the term, there may be a penalty from your current lender. However, you might also save more over time by switching to a new mortgage lender with a lower interest rate now.

Here are three times a mortgage trade-in could be beneficial to your financial health:

1. If your life has changed

Life changes every day, but we’re talking about big financial ones like getting married or divorced, having a baby, or changing jobs. By reviewing your mortgage interest rate with what is happening in the market you could save thousands of dollars in interest charges. This could improve your cash flow as well as potentially reduce the lifespan of your mortgage.

2. Lower rate or better terms

If you can get a lower rate than is being offered by your current lender, switching might save you in the long run. However, you will need to do the math to find out if it is worth it to you.

Another important thing to consider is the prepayment options you are offered. If a new lender can offer you better prepayment options than your current provider, switching could help you pay down your mortgage faster and save you from having to pay more in interest.

Options to consider:

• Can you increase your payment amounts?
• What are the payment frequency options – weekly, bi-weekly, etc. would these help your cash flow?
• Can you make lumpsum payments during the term? Adding just some of your tax return may help you be mortgage-free faster.

3. If you have high-interest debt

If you’ve got debt on a credit card, loan, or line of credit (LOC), you’re paying interest to carry it. If you're able to consolidate your debt into your new mortgage when you trade in your existing one, you may have a lower interest rate on your payments. Also, banking will be simpler because you’ll be making one payment instead of two (or more).

Talking to a mortgage specialists is a great place to start. They can do the math for you so you can understand if switching your mortgage is the right choice, or if you’d be better off to blend and extend.