As interest rates continue to rise, homeowners approaching their mortgage renewal date may be feeling the pressure.
You might have secured a fantastic deal a few years back when interest rates were historically low, but times have changed. The Bank of Canada has taken away the low-interest rates, and now interest rates are steadily climbing. I
It's time to make some crucial decisions about your mortgage renewal.
1. Steps in a Mortgage Renewal
Wait for 6 months before your mortgage renewal date
At the 6 month mark, you will normally receive an interest rate offer for an early mortgage renewal. If you worked with a mortgage broker, you should hear from them around this time.
Reach out to your local branch or mortgage broker to negotiate the rate. (Lenders make more money on mortgage renewals than funding the initial mortgage. This means they won't offer you the best rate right away).
Renew your mortgage if the rate is satisfactory after negotiating.
If the rate isn't good, request that your mortgage broker search for other rates.
Sign your documents and wait for the renewal date.
2. Fixed vs. Variable Rates
The first major decision when renewing your mortgage is whether to go with a fixed-rate or a variable-rate mortgage.
As a mortgage expert, I can tell you that both options have pros and cons. Fixed-rate mortgages provide stability and predictability, making it easier to budget for your monthly payments. Whereas variable-rate mortgages come with the unpredictability of the interest rate market. But this can be beneficial because interest rates might decrease over the 5-year term.
This means that the volatility of changing rates can be bad if rates go up and good if rates go down.
3. Sticking with Your Existing Lender or Seeking a New Provider
You'll need to decide whether to stay with your existing lender or explore options with a new provider if the terms offered to you by your current lender aren't favourable.
Staying with your current lender is the easiest option. You will sign the paperwork, and your mortgage will be renewed. It's as simple as that. But I refer to the easy-hard principle when discussing this option.
This principle says that doing easy things today will lead to hard times in the future, and making hard choices today will lead to easy times in the future.
In other words, choosing the easy renewal might not be the best option for you.
This is because the rate, terms and conditions of the mortgage that you are renewing might be detrimental. I'll give you an example from a scenario I had with one of my clients. They were up for renewal, and the lender sent them their renewal options.
They had a 4.5% interest rate that was up for renewal. The lender sent them new rates at 7.5%. This meant their payment would have gone from $1,600 monthly to over $1,900 monthly. All the client needed to do was to sign according to the lender. Sounds crazy, right?
I had reached out to this client around the 6-month mark, and the client was able to send me these rate options.
I looked around for rates and found a rate of 5.89%. This now meant the client's payment would only increase to $1,700. As a result, the client saved money monthly and thousands of dollars over the 5-year term.
This is what I mean by the easy-hard principle.
Yes, it would have been easy to sign the original renewal agreement. However, it has made it hard on the client because of the payments and high interest paid over the term.
It's essential to shop around to ensure you're getting the best offer.
4. What Mortgage Term Should I Choose?
Your mortgage term should be decided based on your current and future living conditions.
A shorter term provides you with flexibility, while a longer-term offers greater payment stability. As a mortgage expert, I recommend to my clients to consider your financial goals and your comfort level with potential rate changes when making this decision.
For example, if your current home is your forever home, then a longer term is fine. If you plan to move in a year, look at a shorter term.
Other things to consider include:
Your employment status
Plans to grow your family
Whether the property is a rental property or not
Plans to sell the property
5. Useful Mortgage Resources
To make an informed decision, you'll need the right resources.
That's why we've created a Mortgage Mastery Kit that gives you over 15 tools that will give you information and calculators. These tools will help you make an informed decision and calculate your future costs from your mortgage.
If you want a more streamlined process and access to better interest rates, I always recommend talking to your local mortgage broker.
Your broker will look at your entire mortgage picture and will discuss the best mortgage options with you. For example, I am able to find better rates than those on the open market or the Internet 90% of the time.
Even if your lender offers you a good rate, I still recommend talking to a mortgage broker.
This is because the broker will compare your rates with those on the market. In my case, I look at the rates, and I've come across multiple scenarios where the rate my client was offered was great. I then recommend the client do the renewal.
Sometimes, the client's current lender is offering the best rate and good terms, at which point we advise them to renew.
6. The Importance of Expert Advice
Never underestimate the value of obtaining expert advice when it comes to your mortgage renewal.
A seasoned mortgage professional can guide you through the process, helping you avoid common pitfalls and make the best decisions. I've run into scenarios with clients where a lender is offering them a fantastic rate, but the mortgage conditions will handcuff them for the term. For example, one client was offered a low interest rate, but the mortgage couldn't be moved to a new property and couldn't be broken without a large fee.
60% of Canadians break their mortgage within their 5-year term. These fees I mentioned would have cost the client more than the interest rate savings they were receiving if they ever wanted to move or break their mortgage.
7. Why Mortgage Terms and Conditions Matter
One common mistake is focusing solely on interest rates and neglecting other essential terms and conditions of a mortgage.
These can include portability, prepayment privileges, and penalties for breaking your mortgage. As a mortgage expert, I stress the importance of considering these factors when talking with clients.
As I mentioned earlier, having the ability to port your mortgage and avoid fees could save you a bundle of money if you ever need to move or sell.
8. What Terms to Look For In Your Mortgage Renewal
Consider these desirable features when renewing:
Longer amortization
Prepayment privileges
A variable mortgage with fixed payments
Portability
Interest rate
Skip-a-payment options
Remember, the best deal isn't just about the lowest interest rate—it's about finding a mortgage that aligns with your financial goals and lifestyle.
9. Timing Your Renewal Rate
Timing is key when it comes to your renewal rate.
Don't wait for your lender's reminders; start the process early. Lock in your renewal rate 120-180 days in advance to take advantage of lower rates or secure a pre-arranged rate if rates rise.
Before you continue..check out our mortgage mastery kit.
This kit contains over 15 ebooks and calculators that can:
Save you money on your mortgage
Reduce the time it will take to buy a house
Eliminate the hassle of the mortgage process
10. Costs of Renewing - Are There Costs to Renew My Mortgage?
You will have no cost if you renew your mortgage with your current A lender. Some B and private lenders have renewal fees, but it is generally rare.
The Bottom Line
Seek expert advice when needed, and remember that the best mortgage deal is one that aligns with your unique needs and financial goals.
Questions/Comments?
Give us a shout in the comment section or find our contact details on the main page of our website at www.triedandtruemortgages.ca.
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