Friday, 9 October 2015

The 'Free' Mortgage Switch

When is free not really free?

Every day for the last month or so, I've been walking past a major bank branch who has been advertising a 'Free Mortgage Switch'. When I saw the offer, I couldn't help but remember the old saying: "If it sounds too good to be true, it probably is!".

With that in mind, I spent some time researching the program and thought it was worth clarifying the small print that goes along with offers like this. Several of the lenders I work with offer a similar program, and almost all of them have some limitations that you should be aware of.

Rule #1: The Fee Cap

Even if the offer includes transfer of some fees, there will be a cap(Usually of $1000-$1500) beyond which you will be responsible for paying the difference. This keeps your new lender from accepting the risk of a transfer that comes with exorbitant fees from your current lender. Always ask questions about the cost of leaving your lender, before assuming that those fees will be paid for.

Rule #2: Collateral Charges 

A collateral charge mortgage is registered against your property differently from a standard mortgage, and is often unable to be transferred to a new lender(For more info, click here). While there are some programs to allow a collateral switch, most times you will be required to pay the fees to discharge your old mortgage, and register a new one with your new lender.  This discharge/registration process can be expensive and will require the services of a lawyer or notary to complete.

Rule #3: The Cash-Back 'Free Switch'

There are now some big banks offering up big cash-back incentives when you switch to their institution, and while this could help offset some of the extra fees that might not be covered, it comes at a price. Cash-back mortgage options come with a hefty interest premium, and could wind up costing you a lot more money than you would expect. Carefully compare how badly you might need that cash now, vs. how much the increase in interest will cost you over your mortgage term.

Rule #4: Where Has This Thing Been? 

Your new lender will also have a specific set of guidelines describing who they will accept mortgages from, and under what circumstances. If your mortgage is currently with a lender that isn't on the list, then you guessed it! You're going to have to discharge the old and register the new(i.e. there will be legal costs)

Today's message is simply this: Always read the fine print, it's rare that a deal which sounds too good to be true actually is. There are plenty of lenders who will gladly transfer your mortgage in at no cost, but you are going to have to meet the criteria they set out in advance. This generally means no collateral charges, very low fees/penalties, and only from a lender with whom they are comfortable dealing.

When you're thinking about switching or transferring your mortgage elsewhere, come see me first for a no-cost review of your situation and some good advice about where and when to make the switch. It will not only make the process easier, but could save you a lot of money!

Contact me HERE for more info!

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