Keep Your Lender or Switch: A Strategic Analysis

At mortgage renewal time, many Quebec homeowners automatically sign the renewal offer sent by their current financial institution without exploring market alternatives. This habit collectively costs Canadian borrowers millions of dollars annually, as automatic renewal rates are rarely the most competitive. Yet switching lenders is not always the best strategy either — the process involves costs, delays, and requalification requirements that can complicate or negate the expected financial advantage. This detailed analysis helps you navigate this important decision by considering all factors relevant to your specific situation in Quebec.

Advantages of Staying With Your Current Lender

• Administrative simplicity: Renewing with your current lender is the simplest path. You receive a renewal offer by mail or online, you accept or negotiate the rate, and the new term begins without interruption. No notary, no appraisal, and no full qualification process is required.
• No B-20 requalification: When you stay with the same lender at renewal, you are not subject to OSFI's B-20 stress test. This exemption is crucial if your financial situation has changed — reduced income, new debts, recent self-employment — and you could not requalify under current rules.
• Relationship continuity: An established banking relationship can facilitate access to other financial products (home equity line of credit, RRSP loan, premium credit card) and give you better negotiating power across all your financial services.
• Negotiable retention rate: While the automatic renewal rate is rarely competitive, lenders have retention budgets and are willing to significantly improve their offer to avoid losing you. Presenting a competing offer can reduce the retention rate by 0.20% to 0.50%.

Advantages of Switching Lenders

• Access to the best market rates: Monoline lenders and certain alternative lenders regularly offer rates 0.15% to 0.40% below major bank rates. On a $400,000 balance over a 5-year term, a 0.25% spread represents approximately $5,000 in interest savings.
• Better contractual conditions: Monoline lenders often offer more generous prepayment privileges (20-25% vs 10-15%), more fairly calculated breakage penalties (IRD on contractual rate vs posted rate), and more flexibility on payment increases.
• Transfer incentives: To attract new clients, many lenders offer transfer incentives including partial or full coverage of legal fees (up to $1,500), cash back ($500 to $3,000), and sometimes even coverage of discharge fees.
• Fresh perspective: A new lender evaluates your file with fresh eyes, which can reveal options your current lender has not proposed, such as an adjusted amortization, a different mortgage product, or a more advantageous loan structure.

Costs and Considerations of Transferring

Transferring a mortgage to a new lender involves costs and constraints that must be carefully evaluated. Legal fees for registering the new mortgage at the Quebec Land Registry range from $1,200 to $2,500, although many lenders offer to cover part or all of these fees as a transfer incentive. Discharge fees for the old mortgage cost between $250 and $350. A property appraisal may be required ($350 to $500), especially if the lender does not have access to automated valuation data for your area. The entire process typically takes 30 to 60 days and requires compiling financial documents (income statements, debt statements, notice of assessment). If your renewal is within 120 days, you can initiate the process now.

Decision Criteria Based on Your Profile

Your decision should be guided by your specific financial profile. If your financial situation is stable and you can easily pass the B-20 test, switch lenders to get the best possible rate — the difference over 5 years amply justifies the effort. If your financial situation has changed negatively (unstable income, new debt, recent self-employment), stay with your lender to avoid requalification. If you have a high mortgage balance (over $300,000), even a small rate gap of 0.15% generates substantial savings that justify the transfer. If your balance is more modest (under $200,000), transfer fees can absorb a significant portion of the savings. Finally, consider your overall banking relationship: if your current lender offers significant advantages on other products, a comprehensive negotiation approach may be more advantageous than a simple mortgage transfer.

Monoline lender

A financial institution specializing exclusively in mortgage lending, without offering traditional banking services such as chequing accounts or credit cards. In Canada, major monoline lenders include First National, MCAP, RMG, Merix, and CMLS. They generally offer lower rates than major banks because their operating costs are lower, and their breakage penalties are often calculated more fairly using the contractual rate rather than the posted rate for the IRD calculation.