Most mortgages must be renewed once or more times before they are completely paid off. Unless you have enough cash to pay off the outstanding balance of your first mortgage term, the chances are that you are part of 36.3 percent of Canadian property owners who carry a property loan and must renew it at the end of a specified term.
Simply put, a mortgage renewal is a process of taking the total amount outstanding balance and renewing it for an additional term or another term (specified by the lender) at a hopefully lower rate. Suppose you do not have the maturity date penciled into your calendar, you know it’s the right time to renew your mortgage when your lender sends a renewal reminder in your mail. This reminder or slip includes the new mortgage term offer and mortgage rate. You are required to sign it and send it back.
However, it would be best to take a proactive approach when it comes to renewing your mortgage. Here are mortgage renewal tips.
1. Analyze your current financial situation & objectives
Before signing the mortgage renewal contract and sending it to your lender, review your current financial situation and goals. It’s imperative to ensure your current lender can offer a mortgage option that best suits your needs.
For instance, if the previous mortgage term had a 5-year fixed rate. The renewal contract will likely suggest another 5-year fixed rate. Assuming that you plan to stay in your property for that period of time, this is a great option. But if there is a chance you will shift to another city or downsize your household in the next five or fewer years, it’s best to look for a 3-year contract.
Other important financial issues to consider, including how an additional amount of money such as inheritance could impact the payment option you prefer. Also, find out if it more sense to get HELOC to access equity. Understanding what you need in a property mortgage can help you make an informed decision about the specific lender and mortgage option that best suits your situation.
2. Shop around early
How soon can you renew your mortgage? Though you may be just a few months away from your current mortgage maturity date, most mortgage brokers say that the early you renew your mortgage, the better. Your current lender is likely to send a mortgage renewal slip within the last 30 days of your term. However, you can begin negotiating as early as 120 days before your mortgage maturity date.
In case you cannot negotiate a better offer with the current mortgage lender, you will still have enough time to consider switching mortgage providers. Keep in mind that you may be unable to switch a mortgage over until the actual renewal date arrives. On the flip side, this delay gives your mortgage broker enough time to research widely and advise you accordingly. Also, you will have enough time to get the necessary paperwork ready.
3. Request better rates
Sometimes, lenders make it too easy for homeowners to renew mortgage by providing an easy way to do so. They already know you are busy, and you’ll pay for this convenience. In most cases, mortgage providers offer their current customers and discount on the posted rate on a mortgage renewal slip. However, this is not the lowest possible rate, even from your current mortgage lender. There may be other lower rates available from other financial lenders.
For this reason, it is possible to negotiate mortgage renewal for a better rate. Suppose your current mortgage matures in the next 30 days, and you had agreed to a 2.74% 5-year-fixed rate. In that case, your current mortgage lender may offer a 0.25% discount on the postage rate for a new rate of approximately 4.88%. This would mean your monthly payments will be about $1953.60.
But shopping around could help you secure a better rate for the next half a decade. Perhaps you will secure at 2.94% 5-year-fixed rate. If you were to qualify for such a rate, your monthly installments would be $1652.13 (more manageable). This can save you about $301.47 monthly. It would be best if you weren’t scared to negotiate with lenders. Being able to get the best mortgage is a common reason Canadians switch mortgage providers at mortgage renewal time.
4. Compare mortgage rates
It might seem a lot of work to shop around for a better mortgage lender and compare mortgage rates. At first, saving a few percentage points off your current mortgage might seem not worth the effort. But failure to do so could leave you financially vulnerable. This is due to a concept known as interest rate risk, which occurs when your current mortgage is expected to renew at a higher rate, exerting more financial strain on your current budget.
Interest rate risk often occurs in three different scenarios for property owners in Canada. If you already have a variable rate mortgage, increasing interest rates might affect you negatively immediately. A fixed-rate mortgage coming up for a higher interest rate renewal may affect you negatively. And if you already have a home equity line of credit with a variable interest rate, increasing interest rates could affect you negatively.
In these scenarios, mortgage renewal at a higher interest rate or even refinancing to access property equity is likely to add hundreds of dollars to your installments. These hundreds of dollars could mean the difference between just making ends meet and paying down your debt. For this reason, it is important to take the time and consult with an experienced mortgage broker to shop around for the best mortgage rate.
Mortgage renewal is easy if done with your current lender. But signing the mortgage renewal slip from your current lender may not get you the lowest possible mortgage rate. The good news is that working with an experienced mortgage broker gives you the opportunity to shop around, compare rates, and choose the best mortgage renewal deal.