How Does Switching Mortgage Lenders at Renewal Work?
When it comes to mortgage renewals, different people handle it in different ways. For instance, did you know that when your mortgage term ends, you aren't locked into staying with the same lender. In fact, switching mortgage lenders at renewal is a common financial move for Canadian homeowners who want to take advantage of better rates, flexible terms, or improved service.
However, understanding how switching lenders works can be a bit tricky, especially when you factor in things like collateral vs. conventional charges, legal fees, appraisals, and refinancing options.
In this article, we'll walk you through exactly how switching mortgage lenders at renewal works in Canada, including what to expect for both standard and collateral charge mortgages, what fees may be involved, and how an appraisal can (or cannot) affect your new mortgage amount.
The Basics: What Happens When You Switch at Renewal?
When your current mortgage term expires (typically every 1 to 5 years), you can either renew with your existing lender or switch to a new one. If you choose to switch, the new lender will pay off the outstanding balance owed to your current lender and issue you a new mortgage for that same amount, assuming no other changes.
This process essentially replaces your old mortgage with a new one—new lender, new terms, and potentially a better rate. The loan amount typically stays the same unless you opt for a larger loan (which involves refinancing, not just switching).
Conventional (Standard) Charge Mortgages
A conventional charge mortgage (also known as a standard charge) is the most straightforward when it comes to switching. Here's why:
Simplified Legal Process: Conventional mortgages are relatively easy to switch at renewal. The existing mortgage doesn't need to be discharged from the title, meaning no re-registration fees or legal hoops to jump through.
No Appraisal Required: Most standard switches don’t require a new property appraisal unless you're requesting a higher loan amount or changing terms significantly.
Lower Costs: Many lenders offer to cover the legal fees involved in transferring a standard mortgage. That means you can switch without paying out of pocket.
Flexibility: Conventional mortgages make it easier to take out second charges or additional loans in the future, as your current lender doesn't control all access to your home equity.
In short, if you have a conventional mortgage and are simply switching lenders at renewal without changing the loan amount, it’s often a seamless, cost-free process.
Collateral Charge Mortgages
Collateral charge mortgages complicate the process a bit. Originally designed to provide more flexibility for borrowing against home equity, these mortgages come with their own set of pros and cons when it comes to switching.
Treated Like a Refinance: Unlike conventional mortgages, collateral charge mortgages must be fully discharged from the property title and replaced with a new charge. This is a more involved legal process and often incurs legal and appraisal fees.
Appraisal May Be Required: Because the process resembles refinancing, the new lender may order an appraisal of your home. This determines the property's current value and could affect your borrowing options if you decide to increase the loan amount.
Legal Fees: Most lenders do not cover legal fees when switching out of a collateral charge mortgage. You’ll typically need a lawyer or notary to handle the discharge and re-registration of the mortgage.
Less Switching Flexibility: Some lenders that use collateral charges include clauses in their mortgage contracts that prevent second charges or prohibit switching to another lender without incurring penalties or restrictions.
However, it’s not all bad—some lenders offer cashback incentives when switching to help offset these extra costs. Others may roll legal fees into the new mortgage amount if you qualify.
Do You Need an Appraisal When Switching?
This depends on a few factors:
Standard Switch (Same Loan Amount): If you're not increasing your mortgage balance and have a conventional mortgage, an appraisal is usually not required.
Collateral Mortgage or Loan Increase: If you're switching from a collateral charge mortgage, or if you're asking for a larger loan (to pull out equity, for example), then an appraisal is often required.
An appraisal determines the current market value of your home, which may be higher than when you first took out the mortgage. If so, this can open up options like:
Re-amortizing your mortgage over a new term
Borrowing more funds (for renovations, investments, or debt consolidation)
Creating a HELOC (Home Equity Line of Credit)
But it’s worth noting: you are not required to borrow more money just because your home is worth more. You can simply take a new mortgage for the same remaining balance and leave the additional equity untouched.
HELOCs, Equity Access & Second Charges
One of the appeals of collateral charge mortgages is that they make it easier to add a HELOC with the same lender later, without needing a new registration. However, this flexibility has a trade-off: difficulty switching lenders.
With a collateral charge: You may be blocked from getting a second charge (like a second mortgage or HELOC) from another lender, depending on the original mortgage agreement.
With a conventional charge: You’re usually free to get a second charge from another lender if you have enough equity. This gives you more freedom to shop around for the best HELOC or second mortgage rates.
Before signing, it’s wise to ask your lender if your mortgage allows secondary financing from other lenders.
What About Legal Fees?
Standard mortgage: Legal fees are often waived or paid by the new lender when switching.
Collateral mortgage: Expect to pay legal fees unless your new lender offers a cashback or incentive.
Legal fees typically cover:
Discharging the old mortgage
Registering the new mortgage
Notary or lawyer costs
Some lenders will offer a $1,000–$2,000 cashback to help offset these costs, particularly if you’re switching from a competitor.
Should You Use a Mortgage Broker?
A mortgage broker can be an invaluable ally when switching lenders. They:
Help you compare rates and terms across lenders
Understand the ins and outs of different mortgage types
Can identify which lenders cover fees or offer cashback
If you're unsure whether to go with a standard or collateral mortgage, or whether switching makes sense, a broker can give you personalized advice and save you time.
Final Thoughts
Switching mortgage lenders at renewal can save you thousands in interest over the life of your mortgage—but it’s not always as simple as it sounds. If you have a conventional mortgage and you're not making major changes, the switch is usually free and easy. If you have a collateral charge mortgage, expect more paperwork, possible legal costs, and an appraisal.
The key takeaway? Know what type of mortgage you have now, understand what you’re being offered, and weigh the pros and cons of switching carefully. Even with a few extra fees, the long-term savings might be well worth it.
Always compare offers, read the fine print, and don't hesitate to get help from a broker or legal professional to make sure your switch is smart and seamless.
