Many Canadian mortgage holders renew without asking any questions — often receiving a higher rate with a mortgage product that doesn’t suit their needs. Do yourself a favour, and don’t sign a renewal letter without doing your due diligence. Take an assessment of your current situation, put a plan in place, and let the lenders compete for your business to ensure you receive the best mortgage possible. Here’s what you need to consider before renewing your mortgage.
Put a plan in place
Don’t wait until the last minute to act on your mortgage renewal. Start reassessing your needs well in advance of your renewal date to make sure you get the best rate and mortgage product for you and your family. The Canadian Real Estate Association (CREA) suggests planning ahead and reviewing your needs four months prior to your renewal date. This includes:
• Researching the current market for trends, interest rates, and lenders’ products.
• Educating yourself on the options available, including everything you need to know about reverse mortgages.
• Assessing your current financial situation, accounting for things like savings goals, children’s education, and debt consolidation.
Do your research
Leading up to your renewal date, it’s important to do your research on products, features, interest rates, and interest rate trends. It’s also recommended to shop around and investigate the different lenders available to you. The Financial Consumer Agency of Canada website is a great starting point when it comes to research, offering a wealth of up-to-date resources including answers to frequently asked questions about mortgage renewals. Your REALTOR® is another excellent resource to tap into for advice on what to consider when renewing your mortgage.
Request a lower rate
A simple, yet often overlooked consideration when renewing your mortgage, is to negotiate with your current lender for a lower interest rate. Despite what’s outlined in your renewal letter — which must be sent to you at least 21 days before your renewal date — you may qualify for a discount. If you don’t ask for a lower rate with better terms, your lender may automatically reintroduce your mortgage at a higher rate than you’re eligible for.
When it comes to negotiating your renewal, tell your lender about offers you’ve received from competing financial institutions or mortgage brokers — make the lenders vie for your business.
Consider this a fresh start
It’s likely a lot has changed in your life since your initial mortgage, or significant events have since occurred that have an affect on the marketplace. For example, you or your spouse may have switched careers, your children may no longer live at home, or interest rates may have dropped due to outside factors — according to CREA, interest rates have never been as low as they are right now during the COVID-19 pandemic. Just because your lender hasn’t conducted a reassessment, doesn’t mean you have to blindly accept the same mortgage.
Expand your horizon
Lenders are constantly introducing new mortgage products and features, which means you might have access to potential savings. This includes, but is not limited to, improved pre-payment options, cash back programs, amortizations, accelerated payment schedules, and investment opportunities.
You don’t have to renew
Once your mortgage term is up, you’re not required to remain with the original lender. If you’re offered a better rate or improved terms and conditions from a different bank or mortgage broker, you’re free to make the switch. This is also your chance to pit lenders against each other and have them compete for your business — you’re in control at this point; make sure to take advantage of every opportunity available to you.
It’s recommended to start exploring your options well in advance of your renewal date — if you wait until you receive the renewal letter from your lender, you may miss out on the best offer for your needs.
You can refinance
You can save thousands of dollars at your time of renewal if you’re considering refinancing and taking equity out of your home. When your mortgage term expires, you aren’t subject to early payment penalties, so if you’re thinking about taking advantage of investment opportunities, renovating your property, consolidating debt or paying for your child’s education, your renewal date is the time to do so.
Don’t get intimidated by fees
If you do choose to switch lenders when renewing your mortgage, you may be subject to additional fees such as:
• new lender set-up fees like the cost to discharge your previous mortgage and register the new one;
• a transferal or reassignment fee from your current lender; and
• if necessary, the cost of an appraisal fee to confirm your property’s current value.
Other fees to consider are mortgage loan insurance premiums and collateral charges on your initial mortgage. To avoid paying a premium twice, be sure to inform your new lender you currently hold mortgage loan insurance and provide them with your certificate number.
If you want to switch lenders and your mortgage includes collateral charges, you will likely have to pay a fee before registering your mortgage with a new lender. Removing the charge completely requires full repayment or transferring all loan agreements secured by the collateral charge — such as lines of credit or car loans — to the new lender.
Don’t be afraid to ask your new lender if they’re willing to include discharge fees into the new mortgage — they may even cover part or all of the fees to earn your business, but you won’t know if you don’t ask.
Despite these additional fees, they are typically minimal when you compare them to how much you’ll save in interest long-term.
Switching lenders equals more work
As mentioned above, switching lenders may result in additional fees, and it requires additional research and legwork on your end. As renewing your mortgage with a new lender is considered a new mortgage altogether, you must go through the application process again. This means proving your income and having your credit checked, so it’s important to weigh your options carefully before making the decision to switch lenders.
Aim to keep your payments the same
If your original monthly payment was manageable at the higher rate, it’s advised to keep it the same after renewing your mortgage. Given the interest rate is likely to drop, having the same monthly payment means you’ll pay off your mortgage sooner and secure your financial security.
Remember, resting on your laurels can cost you thousands of dollars when it comes to renewing your mortgage. Don’t wait for your renewal letter and don’t let your lender automatically renew without doing your due diligence — be proactive and take action months in advance of your renewal date.