Is it time to make a switch, or should your mortgage stay put? With so much information out there, it can be hard to make a decision — let alone understand the difference between renewing, refinancing, switching and blending and extending. So first of all, 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.
- 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.
3 switch-worthy situations
It's important to know that if you switch your mortgage, there may be a penalty from your current lender. However, you might actually save more over time by switching to a new mortgage lender with a lower interest rate now. You could also be eligible for our cashback offer, which can help minimize the impact of any penalties.
Here are three times a mortgage trade-in could be beneficial to your financial health:
1. When interest rates are low.
Right now, interest rates are incredibly low, and are predicted to stay that way. Recent announcements by the Bank of Canada mean consumers will likely see impressive interest rates on mortgages and other loans for the foreseeable future. In many cases, people will save enough on interest on their mortgage payments going forward to make up for any penalty.
2. 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 losing your job — approximately 1.3 million Canadian workers just passed their sixth month unemployed.
COVID-19 has caused multiple financial struggles for a lot of Canadians. As people navigate the second wave of the pandemic and focus on what's ahead, many are working hard to get their finances back on track. Could switching your mortgage help you save money in the long run?
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’ll 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).
Get expert advice on switching your mortgage
Talking to one of our mortgage specialists is a great place to start. We 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. Contact us online, call us at 1-888-597-6083 or apply for mortgage pre-approval now.