There are two situations where a borrower can break their current mortgage and move to a new lender. One is a Direct Switch and the other is a Refinance.
With a Mortgage Switch, you are not adding on any more funds to the mortgage and the remaining amortization (length of time to pay down the loan) must be the same or less than the existing mortgage.
There is no legal cost to a switch and an appraisal is typically not required. If there is a penalty to pay out the existing mortgage, up to $3000.00 can be added onto the new switch mortgage. If the penalty is more then $3000.00 the borrower can pay the difference, or we can change the mortgage to a refinance.
A Mortgage Refinance is where the borrower is adding on more funds to the new mortgage. The amortization can be extended too. The new funds could be to consolidate debts, take out money to renovate, funds for a down payment on a new property, pay for Child’s university, or add on a secured line of credit. If we were planning on doing a switch but the penalty is greater then $3000.00, we can then treat the mortgage as a refinance and on the full penalty costs.
From a cost perspective refinances do require appraisals and there can be a legal closing cost of roughly $800.00. These costs are blended into the mortgage. Some lenders can sometimes cover the legal cost depending on the product and time of year, a Spring Promotion for example.
With rates at an all-time low, a lot of clients are switching or refinancing just to obtain a better interest rate and lower their borrowing costs. This is fine and can make sense. It is just about doing the calculations.
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