With the pandemic era of historically low rates behind us, many homeowners in Canada will be renewing their mortgages despite significantly higher interest rates. As daunting as it may seem, it is possible to navigate this shift with smart planning and the right experts working alongside you. Here are three key things to keep in mind to ease this transition if you’re renewing your mortgage this year:
Shop Around Different Lenders and Mortgage Options
When it comes time for a renewal, it’s tempting to stay with your current lender for convenience. However, at Homewise, we always encourage home buyers and existing homeowners to shop around with different lenders. The marketplace is diverse, with lenders offering various rates and features that may be more suitable for your current financial situation and long-term goals. Shopping around presents an opportunity to access better rates, therefore easing your financial burden over time.
There is an added advantage if you switch lenders this year, as it may not require a stress test. However, qualifying for a mortgage when switching lenders continues to be essential. For those homeowners with a renewal coming up, keeping your debt low and cash flow high keeps you in good favor with lenders and shows that you’re a dependable borrower.
Make Your Renewal Manageable with Mortgage Prepayments
Another way to minimize the financial burden of your upcoming renewal, a scenario many are facing post-pandemic, is through mortgage prepayments. Many lenders allow for a certain percentage of your mortgage to be prepaid. This helps to reduce the principal owed, leading to lower renewal rates.
However, it is crucial to read the fine print to better understand the lender’s prepayment limits and penalties. Some lenders are flexible at renewal, allowing for larger prepayments, while others may charge a penalty. In some cases, the penalty can cost thousands of dollars, this is why shopping around for other vendors is a great idea. Otherwise, making prepayments could be a good way to ease the pressure of a higher rate at renewal.
Extend Your Amortization Period
At renewal time, homeowners also have the option to re-amortize their mortgage, which simply means extending their amortization period. This can help to lower your monthly mortgage payments; however, there are some long-term implications to consider. Extending your amortization period means that you’re adding years of interest payments to your schedule, which can increase the total cost of your mortgage.
For example, if your mortgage is 20 years and you extend the term to 25 years, you’ll be lowering your monthly payments, but your total interest costs will increase. So, while this option provides temporary financial relief, it costs you more money over the long term.
A mortgage renewal is a critical long-term financial decision and shouldn’t be taken lightly as there are many things to consider. At Homewise, our dedicated mortgage advisors are well-equipped to help every client navigate this process. We provide expert advice, leading you toward the best mortgage options that align with your financial goals in a post-pandemic world.
