When purchasing a new property, you can generally count in it to close on time. Sure, there are some rare exceptions, but they are indeed rare.  

Purchasing is one thing, but what about closing a new mortgage when transferring to another lender at time of renewal?

While the majority of mortgage transfers will close on time, late closings are far more common when compared with purchases.

But why would a transfer close late?   ….and if it does, what are the consequences?

There are three common reasons why a mortgage transfer might miss the mark:

  1. Starting the process too close to your maturity (renewal) date
  2. The current lender is late in issuing the payout statement
  3. Delays with receipt of documents from the borrower

 

  1. Starting The Process Too Close To Your Maturity Date

The mortgage transfer process takes approximately 30 days to complete. There are times when it can be done in as little as 21 days, but 30 is a more realistic number. If you come to us inquiring about your options to renew your mortgage with less than 30 days to your maturity date, then chances are strong that it will not close on time.

  1. The Current Lender Is Late In Issuing The Payout Statement

The payout statement is what a lender issues to detail how much money is required to pay them off in full. It usually takes roughly five to eight business days for a lender to release the statement after it has been requested. There are times when it will be received earlier, but there are also times when it can come later. The exact time of release is up to the lender that is being paid out.  

Lenders will usually not issue the payout statement if there is more than one payment outstanding. For example, if you still have a few payments remaining, the lender will want to wait until after your second last payment has been withdrawn from your account. Your final mortgage payment falls on your maturity date. While some lenders will still withdraw your final payment as scheduled, most will add the interest from that payment to the mortgage payout statement in lieu of the final payment. If you’re on a weekly payment schedule, then this means that they payout statement may not be requested until the week before closing. Most lenders will be quicker in issuing it given the tight timeline, but not all. If they delay, the chances of a delayed closing are strong.

Some lenders will not even accept a payout request until it’s two weeks before the maturity date. On top of that, they can also be tardy with its release, sometimes waiting until a couple days before the maturity date, or even right on the date itself. In this case, your new mortgage will definitely be closing late. This is unfortunately not that uncommon.

  1. Delays with receipt of documents from the borrower

Life can get hectic at times which can result in us putting off things that are seemingly less important. With everything else we have on the go, collecting the documents required for a mortgage renewal may not seem like the biggest priority. If we start the process with months to spare, then you have time. But if we’re within 30 days of your maturity date and requested documents are not being provided in a timely manner, then we run the risk of the closing being delayed. 

 

What Are The Consequences If Your Mortgage Transfer Closes Late?

There are many people who will get stressed out if it looks like a mortgage transfer is going to close late. While having a purchase close late can come at a significant cost, the cost of a transfer closing late is minimal by comparison. 

If your maturity date passes and your current lender has not been paid out, then most will put you into an open mortgage automatically. This means that there is no penalty to break it early.

This is where you need to be careful.

Some lenders will automatically renew you into a closed mortgage, which would mean that a penalty would apply once they are paid out.

This is what you want to avoid.

Even if the payout statement has already been requested, some lenders will still auto renew you into a closed mortgage if they are not paid out at maturity. I personally think this is completely unfair and flat out wrong, but this is the policy of one of the major banks. They know they are being paid out, so you would think that this would be enough for them to put you into an open mortgage automatically. Yet they will still auto renew you into a closed mortgage, sticking you with a harsh penalty that shouldn’t apply.

If it is not explicitly clear that your current lender will be renewing you into an open mortgage, then you’ll want to contact them to ensure this is done. And make sure you get it in writing as well. Again, most lenders will do this automatically, but you can’t count in it. If unsure, just reach out to us we’ll advise you accordingly. 

Open mortgage rates are high, and can be in the 9% range. Keep in mind that this is an annual rate and that you won’t need it for very long. Just to be clear, the additional cost is NOT 9%. As long as the money is owed, it will never be interest free. The additional cost would therefore be the difference between the open mortgage rate and the rate on your new mortgage.

For example, let’s say you owe $300,000, and the rate on your new mortgage is 4.99%. If the open rate is 9.00% then the additional cost would be the difference between the 4.99% and the 9.00%, which comes to 3.99%.  We would then need to figure out what this would cost on a per diem (per day) basis. 

The formula looks like this:

Balance owing x rate difference / 365 days = per diem cost  

300,000 x 0.0399 / 365 = $32.79 per diem cost

In other words, if your new mortgage closes two days late, the additional cost would be $65.58.

When the reason for the late closing is from a delay in receiving the payout statement, the closing is usually not delayed for more than a few business days. Unfortunately, interest is not charged based on business days. It’s charged on calendar days.  If the late payout statement is received on the Friday before a long weekend, then the closing would be pushed out 5-6 days rather than 2-3.

 

Conclusion

As long as you start the process at least 30 days in advance of your maturity date, then your new mortgage will close on time and as planned the majority of the time. But there can always be circumstances that can result in the closing being pushed out. The consequences of having a mortgage transfer close late are generally far less severe than what many people think. 

For more information on mortgage renewals, I would also recommend reading the following of my blogs:

Everything You Need to Know About Mortgage Renewals

What To Do When Your Mortgage is Up For Renewal And You Want To Buy A New Home