Homeowners in Canada who still owe a balance on their mortgage will be faced with making some decisions as renewal time nears. Mortgage holders have the choice of staying with their current lender or in seeking other, potentially money-saving opportunities elsewhere.
Current lenders will send out renewal slips to mortgage holders encouraging customers to take the simple route to renewal. While there are reasons this may end up being the best option, mortgage holders may be better served by exploring alternatives.
Here is your guide to the Canadian mortgage renewal process.
Make a note in a smartphone or on a calendar about four months before the current mortgage is up for renewal. This will serve as a reminder to start performing due diligence regarding your options in a timely manner. This is also about the time mortgage holders may start getting telephone calls and mailed early renewal notices from current lenders.
This early renewal process can be important because current mortgage holders will often waive early repayment fees during this period. Many will also offer a small additional mortgage interest rate discount during this time.
At about 120 days out, the clock begins to tick on taking action. It is time to research your options regarding interest rates, prepayment choices and other terms of the loan. The better prepared a mortgage holder is, the more likely good decisions will be made in the coming weeks and months.
Re-assess Financial Goals
Life can be full of changes and surprises. Your financial and even family status may be different now than what it was when you first signed up for your current mortgage. Your goals may have changed, and financial resources could have expanded or may have become more limited. Other considerations may have come into play like a child, college tuition or a medical condition. You may be closer to moving or retiring. Now is the time to reassess financial goals and personal needs to use as the foundation for choosing the mortgage product best for you now and in the near future.
The biggest factors to consider in moving forward is:
- What mortgage payment can you comfortably afford for the foreseeable future?
- Will you need to access a home equity loan?
- If you may be selling and/or moving in the next five years, secure a mortgage that is either assumable or portable.
- Will paying off your mortgage be a possibility during this next term.
Consider Peripheral Expenses
Researching mortgage renewal options should include knowing all the associated fees involved. When changing mortgage providers, these fees can be significant. They can include:
- Property Appraisal Fees ($200-$500)
- A Discharge Fee ($20-$400)
- An Assignment Fee ($25-$300)
- Legal Fees ($500-$2000)
These fees may not be necessary when renewing through a current provider. They may, however, also be waived or included in a mortgage negotiated with a new lender.
Mortgage holders should be aware that when switching to a new mortgage lender, the mortgage may be subject to newer “stress test” guidelines making qualifying a bit more challenging than a renewal. These new stress test regulations took effect in Canada in 2018.
How to Save Money When Renewing Your Mortgage
Do you have your fingers crossed this year? Do you hope interest rates stay super-low and that your home holds its value? These are the two wishes of most people when their three or five-year mortgage comes up for renewal. But really, there are more things to be hopeful about should your mortgage be up for renewal in 2016. Like, saving a few dollars over the life of that loan.
Beware early bird offers
There’s no rule that says you must renew your mortgage right before it’s due, or in the weeks leading up to it. Interest rates can be held up to four months. If you’re watching interest rates and are thinking of switching to another mortgage provider, you’ll have time even if you wait until the last minute. But timing could be your enemy. Check at least four months ahead and find a mortgage expert who deals with several lenders. In that way, you’ll be able to determine that the interest rate offers is fair market rate and if the term fits with your needs. Canada Mortgage and Housing (CHMC) conducted a survey in 2015 and reports that 49% of people renewing their mortgage actually worked with lenders to get different terms than what was offered to them in a letter. Here’s a secret: some lenders will jack up mortgage rates in their renewal letters to clients knowing that the other 51% of people will just sign the letter and mail it back in. So, if you get an offer from your lender to renew your mortgage early don’t assume it’s their best offer.
Get out your crystal ball
No one knows the future, but you should still have a quasi-plan about where you see yourself and your home down the road. You want to agree to a new mortgage term that will work with how you see yourself down the road. If you’re just coming off a five-year fixed mortgage, don’t choose that again if you think you might be selling in a year’s time. You’ll get a hefty penalty. If you want flexibility, then choose it. If five years works for your stable lifestyle and income, that’s okay. A variable term might be better if you think you’ll be making more money later on. You might want out early in you think you might need to re-amortize to reduce your monthly payment. Pick your new mortgage with a plan to save money on a potential penalty.
Get an updated market evaluation
If your lender doesn’t offer this, perhaps you can spend a few dollars on your own to get a professional appraisal of the value of your home. This will give you an accurate picture of how much equity you have in your home should you need to either take out a line of credit or increase the one you have for renovations. It’s always a good idea to keep an up-to-date record on the value of your investments, and your home is most probably your largest investment.
Making a Decision
There are some obvious reasons about 85% of Canadians renew their mortgages with their current lenders. First of all, the renewal process is simpler, often a matter of checking a few boxes on a mail-in form or online. It takes significantly less time to renew, taking minutes rather than perhaps hours. Most often, there are far fewer expenses involved in a renewal than in switching providers. Now, with new stress test qualifications involved in switching providers, lenders may find it even easier to stay with current lenders.
That being said, it can still be prudent to explore the options available. Even if a mortgage holder ultimately decides to stay with a current lender, there can be benefits to learning about current rates and options. There just may be a better decision to be made.
By starting the process four months prior to a renewal date, mortgage holders have plenty of time to explore their choices. While lenders only legally have to notify mortgage holders just 21 days from renewal, they will often contact them much sooner to lock-in the renewal. Keep in mind, a decision can have thousands of dollars in impact over the life of the mortgage.
Rising rates and new stress tests are making Canadian mortgage renewals a bit more complicated. Being prepared is your best defense. It may also lead to better, money-saving options.