Many Canadian mortgage holders renew without asking questions — often receiving a mortgage product that may not suit their current needs. Your life and your priorities may have changed since signing on to your last term.
That’s why now could be the perfect time to take a step back and consider the following:
• Will your new rate be higher than your current mortgage? If so, how will this affect your payments?
• Has your financial situation changed?
• Are you planning any home renovations, or will you need additional funds?
• How would moving affect the renewal terms?
• Do you prefer fixed or variable rates?
Do yourself a favour, and don’t sign a renewal letter without doing your due diligence. Here’s what else you need to consider before renewing.
Planning your renewal in advance can pay off
If you renew your mortgage early, you’ll be able to lock in at current interest rates sooner, which can protect you against future potential rate fluctuations.
Today’s economic environment is uncertain. Forecasting what comes next is challenging, given disruption in trade, sticky inflation and geopolitical tensions. This makes future interest rate movements difficult to predict, but one thing experts seem to agree on is this: Canada is not likely to see rates like those of 2020 and 2021 anytime soon.
It’s worth noting, too, that even if the Bank of Canada overnight rate falls, it doesn’t mean that fixed mortgage rates will also go down. This is because fixed mortgage rates don’t always mirror Bank of Canada changes — rather, they are influenced by bond yields and lender expectations of where rates are headed in the future.
With the strain of ongoing changing economic conditions, locking in your mortgage renewal early may provide some peace of mind as you’ll know what your payments will be in the future. Taking some time to talk through your mortgage renewal options with a Mortgage Advisor now can help you make informed choices, rather than feeling rushed when your term comes to an end.
Do your research when renewing your mortgage
Leading up to your renewal date, it’s important to do your research. 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. Enlisting the help of a mortgage broker could also prove beneficial. Their job is to shop on your behalf and find you the best rate, usually getting paid from the lender directly, so it doesn't cost you anything. Your REALTOR® is also an excellent resource and can recommend brokers they trust.
Request a lower rate when it’s time to renew
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.
When it comes to negotiating your renewal, competing offers can help you secure a better rate. You may also be able to negotiate a better rate by consolidating more products with your lender.
Consider this a fresh start in your journey
It’s likely a lot has changed in your life since your initial mortgage, or events have occurred that have an effect 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 changed. One helpful way to assess your current situation is by using a mortgage calculator.
Some features you may want to revisit include:
• Mortgage refinancing If you have non-mortgage debt, refinancing your mortgage at the time of renewal can let you consolidate that debt, helping to lower your borrowing costs and simplify repayments.
• Extending your amortization If you're eligible, this can help relieve any cash flow pressure you may be experiencing.
• Paying off your mortgage faster If rates go down and you have room in your budget, this might be an opportunity to accelerate your mortgage payments.
Look into potential savings opportunities
Lenders are constantly introducing new mortgage products and features, which means you might have access to potential savings. Based on your home’s current value, you may want to consider enrolling in those types of products when needed.
You don’t have to renew with the same lender
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. Of course, you’ll need to reapply and supply all the paperwork required for a new application if you go this route. 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.
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 your mortgage
You can save thousands of dollars at the time of your 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, consolidating debt or paying for your child’s education, your renewal date is a good time to do so.
Don’t get intimidated by fees
If you do choose to switch lenders when renewing, you may be subject to additional fees such as new lender set-up fees, a transferal or reassignment fee or, if necessary, the cost of an appraisal fee.
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 a 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.
Despite these additional fees, they are typically minimal when you compare them to how much you’ll save in interest long-term. 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 the fees to earn your business.
The key takeaway here: take control of your renewal. 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.
This article is intended as general information only. Always consult a professional advisor.
— REALTOR.ca