Are you a homeowner considering adjusting the terms of your mortgage or switching to a different lender? Are you alarmed by the penalties that you might incur to make your desired changes? You’re not alone. This feeling, and frustration, affects thousands of Canadians every day. At Champion Mortgage, we’re here to help you wade through the numbers and determine your best options, so you can make the changes you need to work for your life.
Fact: 73% of Champion Mortgage’s clients have made changes to their mortgage prior to renewal over the last seven years. The biggest reason: to take advantage of lower fixed and variable rates saving thousands in interest.
There are many reasons why homeowners seek to make changes to their mortgage including:
- Job change (70% change jobs before 4 years with the same company – Globe & Mail)
- Divorce or separation (40% of Canadian marriages end in Divorce – Stats Canada)
- Home renovations ($74 Billion in renovations expected by Canadians in 2018 – Altus Group Ltd.)
- Moving (Average Canadian owns 5 homs in their lifetime – Financial Post)
- New relationship
- Lower interest rates (Year over Year Mortgage rates dropped 27 out of the last 37 years – Bank of Canada)
- No longer able to qualify for a mortgage (1 in 6 Canadians – CMHC)
- Inheritance ($750 Billion over next 10 years – CIBC Capital Markets Research)
- Debt consolidation (5 out 10 mortgages are refinanced to pay out debt over 5 years – Canadian Association of Mortgage Professionals)
- And more
The fact of the matter is that life happens and change is inevitable. At Champion, our team regularly reviews the mortgages of all our clients to ensure that they are positioned as well as they can be to pay down their mortgage without negatively impacting their lives — especially in times of change.
At Champion, we conduct what we call a Mortgage Analysis. There are many factors that are taken into our analysis including:
- Current lender
- Mortgage type
- Interest rate
- Renewal date
- Payment frequency
- Mortgage Balance
- Product types
- Personal goals
You may notice that personal goals is one of our key analysis factors. Personal goals are not typically part of the conversation when negotiating a conventional mortgage at a big bank — generally, you will receive a couple of blanket offers without a comprehensive analysis.
At Champion, we operate differently. We believe that your unique situation impacts everything. We need to understand your risk tolerance, your income, your life stage, your plans, and your goals. The more clarity we can have about your bigger financial picture, the better our mortgage recommendations will be.
Ask yourself: Did your bank ask you about your needs or goals when suggesting a mortgage?
If they didn’t ask about your personal situation, how could they possibly make a recommendation that would be best for your life? We know that your lifestyle, needs, and goals are critical pieces of information that will help us make appropriate recommendations that will work for you.
Mortgage Penalty Analysis
Once we understand your particular situation, we will compare your lender’s penalty calculation to those of other major Canadian mortgage lenders to see how you stack up. Then, because we will have taken the time to better understand your goals, we will be able to make recommendations about how best to adjust your mortgage in order to reap the most benefit.
Here is a sample penalty estimate:
In the example above, we would suggest that the current lender has failed the penalty analysis as their charges exceed the average big five banks. In some cases, the penalty associated with breaking your mortgage to take your mortgage elsewhere may not be worthwhile.
On the other hand, despite the high penalties, it may be worthwhile in the long run to switch to a different lender to take advantage of products that offer increased flexibility and lower rates. It all comes down to your unique situation.
There are many mortgage products that offer different attributes, like repayment options and combined debt and revenue accounts, that may provide you with the ability to accelerate your mortgage repayment.
After conducting the penalty analysis, we will perform a rate analysis. In this review we will compare your fixed mortgage rate to current fixed mortgage rates to determine if there is an interest saving opportunity for you.
In this same example, we would suggest that the current lender has likely cause you to miss out on taking advantage of lower rates due to the high cost of their penalties to move into a lower-rate product.
Currently, we are seeing the best discount on prime rates since 2009. That means that variable rate mortgages are generally looking good, but this person wouldn’t have been able to make that change without incurring large penalty fees. In this case, signing on to the lower rate wouldn’t have been enough to offset the sting from the penalties.
Fixed To Variable Analysis
Following the rate analysis, and if it applies, we will conduct a fixed to variable analysis. In this review we will compare your current fixed rate mortgage to a variable rate mortgage, with the assumption that bank prime does not change.
Again, in this example, we would suggest that the current lender has caused the homeowner to miss out on taking advantage of variable rates because the penalty to break their existing mortgage is prohibitively high. There are lenders that can offer mortgages that allow you to make adjustments without such penalties.
Based on these analyses, we would recommend switching to a different lender at the time of renewal. While there may still be penalties to switch, you will avoid additional penalties to making changes prior to renewal. Depending on your situation, the benefit of switching to another lender can lead to thousands of dollars saved over the life of your mortgage.
In the end, the one thing we can all count on is that change is inevitable. At Champion Mortgage, our job is to help you handle your mortgage-related changes as smoothly and effectively as possible. If you are considering adjusting your mortgage, contact us. Let’s have a conversation and see what options you have and where we can help you reduce, or prevent, penalties.