- Mortgage switch costs typically range from $0 to over $2,000.
- Federally regulated lenders (like Big 6 banks) often cover legal and appraisal fees for switches at renewal.
- A mortgage discharge fee, usually $300-$400, is common from your existing lender.
- Legal fees for a new charge on title can be $800 to $1,500 if not covered by the new lender.
- The November 2024 OSFI B-20 update exempts uninsured renewal switches from the stress test at a new lender.
In Canada, the cost of switching or transferring your mortgage depends significantly on whether you are at your renewal period, if your mortgage is insured, and the policies of both your current and new lenders. Generally, these costs can range from nothing (if the new lender covers all expenses) to several thousands of dollars, encompassing legal, appraisal, and discharge fees.
Most often, federally regulated lenders offer 'no-cost' switches at renewal, where they cover the standard legal and appraisal expenses, but you will still typically pay a discharge fee to your outgoing lender.
What are the common fees when switching mortgage lenders?
The common fees encountered when switching mortgage lenders in Canada include discharge fees, legal fees, and appraisal fees.
A discharge fee, charged by your current lender, removes their charge from your property title once your mortgage is paid off. This fee usually ranges from $300 to $400. Legal fees cover the costs of a lawyer or notary to register the new mortgage with the new lender and typically range from $800 to $1,500, though many lenders will cover these if you switch to them at renewal. An appraisal fee, which may be required by the new lender to assess your property's value, is generally $300 to $450, and is also often covered by the new lender during a switch.
Do lenders cover mortgage switch costs at renewal?
Yes, many Canadian lenders, especially the large banks, often cover the primary costs associated with a mortgage switch when you transfer your mortgage to them at renewal.
This is a common incentive to attract new clients. When a new lender offers a 'no-cost switch,' they typically pay for the legal fees to register the new mortgage and any required appraisal fees. However, it's crucial to understand that the discharge fee from your *old* lender is almost never covered by the *new* lender, as it's an expense incurred from terminating your previous agreement. Always confirm with the new lender precisely which fees they will cover.
What are the costs if I break my mortgage early to switch?
If you break your mortgage early to switch lenders, the most significant cost will likely be a prepayment penalty from your current lender, in addition to the standard switch fees.
This penalty is usually the higher of three months' interest or the Interest Rate Differential (IRD) penalty. The IRD can be substantial, potentially thousands to tens of thousands of dollars, depending on your mortgage balance, remaining term, and the difference between your current rate and the lender's current posted rate for a similar term. It is essential to calculate this penalty accurately before deciding to break your mortgage early. Your current lender is legally required to provide you with this calculation upon request.
How does an Interest Rate Differential (IRD) penalty affect switching costs?
An Interest Rate Differential (IRD) penalty significantly increases the cost of switching lenders if you are not at your mortgage renewal date.
This penalty is designed to compensate your current lender for the interest income they lose when you pay off your mortgage early, particularly if current interest rates are lower than your contractual rate. For example, if you have a $400,000 mortgage at 5% with 3 years left, and current 3-year fixed rates are 4%, your IRD penalty could be approximately $12,000 (calculated as the difference in rates multiplied by your remaining balance and term). Comparing this to three months' interest, which would be about $5,000 in this scenario, the IRD is often the higher amount and therefore the one you'd pay. This considerable cost often makes switching outside of your renewal window financially unfeasible unless the interest rate savings are exceptionally high or you are refinancing for other purposes.
Jay Klair — FSRA Level 2 mortgage agent — will personally review your offer for free. One business day reply.
What is the typical cost for a mortgage transfer or switch at renewal?
A typical mortgage transfer or switch at renewal, often advertised as 'no-cost,' usually incurs only the discharge fee from your old lender, which is generally $300 to $400.
This is because the new lender covers the legal and appraisal fees as an incentive to earn your business. For instance, if you're switching a $450,000 mortgage from Bank A to Bank B at renewal, Bank A will charge you their standard discharge fee (e.g., $350). Bank B will arrange and pay for the new legal registration and any necessary appraisal. Therefore, your out-of-pocket cost is primarily the discharge fee. This can save you approximately $1,100 to $1,900 compared to paying legal and appraisal fees yourself.
Are there scenarios where switching lenders has no out-of-pocket cost?
Yes, there are scenarios where switching lenders can effectively have no out-of-pocket cost for the borrower, particularly at renewal.
This occurs when the new lender offers to cover all standard third-party fees, including legal costs and appraisal fees, *and* provides a cash-back incentive that is equal to or greater than the discharge fee charged by your previous lender. While the discharge fee is still technically paid, the cash-back covers it, resulting in zero net out-of-pocket expense for the borrower. Such offers are more common in competitive rate environments when lenders are actively seeking new clients. Always read the fine print to ensure the cash-back isn't tied to a higher interest rate or other restrictive terms.
Summary of Mortgage Switch Costs
Understanding the various costs involved in a mortgage switch or transfer is crucial for making an informed decision. The most common scenario at renewal involves relatively low out-of-pocket expenses due to new lender incentives.
However, breaking a mortgage early can introduce substantial prepayment penalties. It's important to compare the potential interest savings from a lower rate against all associated costs, including any penalties. For a clear understanding of your specific situation and to ensure you are getting the best deal, a comprehensive mortgage renewal review is always recommended.
| Fee Type | Average Cost Range | Who Pays (Typical at Renewal) | Notes |
|---|---|---|---|
| Discharge Fee (Old Lender) | $300 - $400 | Borrower (from old lender) | Mandatory to remove old mortgage charge; almost never covered by new lender. |
| Legal Fees (New Lender) | $800 - $1,500 | New Lender (often covered) | For registering new mortgage; widely covered as incentive for a switch at renewal. |
| Appraisal Fee | $300 - $450 | New Lender (often covered) | If new lender requires property valuation; also commonly covered at renewal. |
| Prepayment Penalty (IRD/3-mos interest) | Varies widely, $1,000s - $10,000s+ | Borrower (to old lender) | Only applies if breaking mortgage early; can be very significant. |
| Title Insurance | $300 - $600 | New Lender (often covered) | Often included in legal fees or covered by new lender. |
Where can I get help reviewing my mortgage renewal options?
For a personalized assessment of your mortgage renewal options, including a detailed breakdown of potential switch costs and savings, you can utilize our free mortgage renewal review.
Our team can help you navigate the complexities of discharge fees, legal costs, and appraisal requirements, ensuring you secure the most favourable terms. Get a free renewal review today and discover how much you could save by exploring all your options before automatically renewing with your current lender.
Frequently asked
Is it worth switching mortgage lenders in Canada?
It can be worth switching mortgage lenders in Canada, especially if a new lender offers a significantly lower interest rate that offsets any associated discharge or legal fees. Savings of even 0.10% to 0.20% on a large mortgage balance can amount to thousands of dollars over a 5-year term.
What is a 'no-cost' mortgage switch?
A 'no-cost' mortgage switch typically means the new lender covers the standard legal fees and appraisal costs associated with transferring your mortgage to them. You will still generally be responsible for the discharge fee from your previous lender, unless cash-back incentives are offered.
Do I need a lawyer to switch mortgages in Canada?
Yes, you generally need a lawyer or notary to process the legal documentation for registering a new mortgage and discharging the old one. The new lender will require their mortgage to be properly registered on your property's title.
Will I have to pay an appraisal fee to switch lenders?
An appraisal fee may be required by the new lender to determine your property's current market value. However, many lenders will cover this fee as part of a 'no-cost switch' incentive, particularly when you are renewing your mortgage.
What is a mortgage discharge fee?
A mortgage discharge fee is charged by your current lender to remove their mortgage from your property's title once your loan is fully paid off or transferred. This administrative fee typically ranges from $300 to $400 in Canada.
Can I switch lenders if my mortgage is insured?
Yes, you can switch lenders if your mortgage is insured. If you switch at renewal and maintain an uninsured mortgage, the November 2024 OSFI B-20 update means you no longer have to re-qualify at the stress-test rate with a new federally-regulated lender.
How does the OSFI stress test affect switching lenders?
The OSFI stress test, also known as the mortgage qualifying rate, requires borrowers to prove they can afford payments at a higher rate. However, for uninsured mortgage switches at renewal between federally regulated lenders, this requirement is being removed starting November 2024, making it easier to switch.
What is an Interest Rate Differential (IRD) penalty?
An IRD penalty is a fee charged by your current lender if you pay off your fixed-rate mortgage before its term ends. It compensates the lender for the interest they lose, usually calculated as the difference between your current rate and their current posted rate for a similar term, multiplied by your balance and remaining term.
Are there any hidden costs when switching mortgages?
While most costs are transparent, always inquire about potential lender-specific administration fees, title insurance, or survey costs if not explicitly covered. Carefully review all documentation from both your current and new lenders to identify any charges.
How long does a mortgage switch take?
A mortgage switch typically takes 2-4 weeks to complete, assuming all documentation is in order and legal processes are smooth. It's advisable to start the process well before your current mortgage renewal date, ideally 4-6 months out.