A client in Montreal has an existing mortgage with Lender A at an interest rate of 3.50% and 3 years remaining on a 5-year term. They wish to switch their mortgage to Lender B, who is offering 3.25%. The outstanding principal is $400,000. Lender B requires discharging the existing mortgage and registering a new one. What type of transaction is this, and what is its primary implication for the borrower?

Question: A client in Montreal has an existing mortgage with Lender A at an interest rate of 3.50% and 3 years remaining on a 5-year term. They wish to switch their mortgage to Lender B, who is offering 3.25%. The outstanding principal is $400,000. Lender B requires discharging the existing mortgage and registering a new one. What type of transaction is this, and what is its primary implication for the borrower?

Answer options:

• A collateral charge transfer, where the existing charge is assigned to the new lender, simplifying legal costs. ✅ A 'switch' transaction, typically involving a new charge registration, which often entails legal fees and appraisal costs.
• A 'transfer' transaction, where the new lender assumes the existing mortgage terms from Lender A.
• A refinance, which always implies receiving additional funds, not just changing lenders.

Correct answer: A 'switch' transaction, typically involving a new charge registration, which often entails legal fees and appraisal costs.

Explanation: When a new lender requires discharging the existing mortgage and registering a new one, it's considered a 'switch' (or refinance without new funds, if you prefer that terminology). This process typically involves legal fees, discharge fees from the old lender, and potentially appraisal fees, unlike a 'transfer' which involves assigning the existing charge.