What you need to know about transferring a mortgage

By: Jonathan Ratner on March 19, 2024

This article has been updated from a previous version.

If you’ve ever wondered if it’s worth it to break or transfer your mortgage, the short answer is yes. But before you contact your broker, bank, or start hunting for a better rate, there are a few things you should know. First off, it’s important to understand the difference between these two actions:

Breaking a mortgage (refinancing): This involves requesting to change lenders before your renewal date has arrived. If you find a better interest rate elsewhere , you’ll need to pay your current lender a penalty to exit your existing contract.
Mortgage transfer: In this case, you’ll need to wait for your renewal date to arrive and pursue a mortgage lender other than your current one for a better interest rate.

Here, we dig into the nitty gritty of what it all means.

Breaking a mortgage

Ron Butler, a mortgage broker with Toronto-based Butler Mortgage, says that between 40% and 50% of all homeowners will check to see whether a competitor offers a better deal when they receive a renewal notice.

“By law, if your mortgage has reached maturity, if you move it, your existing lender cannot charge a penalty," says Butler. “The only thing your lender can charge is a discharge fee, or a statement fee, which has been agreed to when you signed your original mortgage contract.”

Typically, this fee is about $275, which, on a $400,000 mortgage, for example, isn’t very much. While there are some legal registration requirements that must be adhered to, your new (incoming) lender will cover these costs.

“It’s a minimal dollar figure to transfer a mortgage at renewal or maturity, that is normally extremely overcompensated by the savings in interest,” says Butler.

You must wait for the date of maturity to transfer, but you can prepare for it in advance by shopping around. If you opt to break your mortgage at any point prior to the maturity date, you will likely pay a much larger penalty as outlined in your contract. That penalty is usually loaded into the new mortgage.

Transferring a mortgage

Transferring a mortgage, however, is usually a seamless process, since homeowners typically want to keep their mortgage terms the same, including the size and amortization schedule (time it will take to be paid off).

"Transfers are really just about the interest rate,“ says Butler, noting that somewhere between 72% and 78% of consumers consider rates to be the most important aspect of securing a mortgage.

You will, however, need to be aware of penalties for early or extra payments laid out in your mortgage contract, and whether increased monthly payments are permitted. If you want the same product, you must be thorough in ensuring that’s what you’re getting.

Compare mortgage rates

Many people get their mortgage renewal notice in the mail, forget about it, and do what the bank calls “approve the existing terms.”

Butler says these people typically pay too much for their mortgage. If you’re able to qualify for a new rate, the effort of shopping around for a better mortgage rate or simply calling the bank can often lead to saving money.

This was simpler in the past, when interest rates were much lower than they are now. However, some people may still be able to lock in a better rate if they are able to pass the stress test on a new interest rate or negotiate with their current lender to knock off a few percentage points.

“There are [some]opportunities for people to move around,” he says. “But you still have to produce your pay stubs and everything else, and some people don’t want to bother.”

If your mortgage rate is reduced substantially, it’s very simple to see the thousands of dollars in savings over the long term.

“It’s an active marketplace and has been around forever, “ he says.

Before taking any action, understand what breaking or transferring your mortgage means, and how each will benefit you. Keep in mind that breaking a mortgage involves changing lenders before your renewal date, potentially in pursuit of a better interest rate elsewhere. In this case, you’ll need to pay a penalty to exit your existing contract.

On the other hand, a mortgage transfer happens when you wait for your renewal date and switch to a different lender for a better rate. Remember that if your mortgage has reached maturity, your existing lender cannot charge a penalty; instead, they may apply a discharge or statement fee. While there are legal requirements to follow, the minimal cost of transferring a mortgage is often outweighed by the long-term interest savings.