April 27 2021
Far too many Canadian homeowners renew their mortgage with their current lender at the end of their term, potentially losing thousands of dollars in savings both in the short and long term. If your mortgage term is coming up and you’ve received a notice to renew, you’re probably thinking, what now?
A mortgage renewal happens at the end of your mortgage term. For example, if you have a five-year mortgage (60 months), the renewal will take place at the end of that five-year period at the 60 month mark. When it comes time to renew, your current lender will send you a notice in the mail, typically four months prior to the date.
If you’re a homeowner in Canada, here are key things to consider before renewing your mortgage:
We’re always eager to get a second opinion when it comes to our cars or an airline ticket, but unfortunately when it comes to our mortgages, over 50% of borrowers don’t shop around. If you’re a homeowner, it’s important to know that you’re not obligated to renew with your current lender and that you can shop around for a better option. Not to mention, it’s very rare that your current lender will provide you with their best offer off the bat. Many homeowners also don’t realize that when they renew their mortgage with their current lender, they could be losing an opportunity to save more money not only with a lower rate, but also with better features. Shopping around gives you a clear picture of the various mortgage options available in the market, giving you the chance to find a product that is often more suitable than your current mortgage.
By the time your mortgage is up for renewal, it’s likely that your financial situation and goals have changed since when you first bought your home. If you’re able to pay your mortgage down faster because your income increased or you’ve received a monetary gift from a family member, you’ll want to ensure that you find a mortgage that allows you to do this without any penalties. If your goal is to be mortgage-free, taking into account prepayment privileges and penalties is necessary as it can save you tens of thousands of dollars in the long run.
Also, if you think that you may not be at your home for the full 5 years of your new term, you should also consider a mortgage option that has a lower penalty in the event that you have to “break your mortgage” early. Another key thing to consider here is that there are some lenders that have much higher penalties than others – big banks generally have the highest penalties. Further, variable rate mortgages come with lower penalties compared to fixed-rate mortgages, which should also be taken into consideration before renewal.
If you have a loan and are planning to pay it off, it’s wise to do so before you renew your mortgage. If you’re in need of a loan, it’s recommended to hold off on applying until after your mortgage renews. Having outstanding debt or applying for a new loan could potentially make or break your chances of passing the stress test. When you eliminate your overall debt – such as credit card debt or or outstanding loans – this will increase your chances of passing the stress test for renewal.
That being said, renewal time is a good occasion to determine if it makes sense to refinance your mortgage and potentially leverage your home equity to pay off your debts at a much lower rate. When you refinance, you can borrow up to 80% of your home equity, so it’s a great option if you’ve taken on some expensive debt during the five years of your mortgage term.
Your future and where you plan to be will determine the type of mortgage you get today. Before you renew, you should first review your short-term and long-term goals. Are you thinking about growing your family? Do you want to upsize in the near future? Is there a different neighbourhood that has caught your eye? Think about where you want to be over the next 5 to 10 years. For example, if you plan to move to a new home, portability is a key feature to consider as it allows you to transfer the balance of your current mortgage into your new home without penalty.
Renewing your mortgage is an opportunity to potentially find a better one that suits your needs, and put thousands of dollars back in your pocket. At the end of the day, it’s important for homeowners to know that they aren’t obligated to go back to their current lender when it comes time to renew and that it’s actually more valuable to shop around. That’s why our team at Homewise works with over 30 banks and lenders to show you the different mortgage options available so you can make the best mortgage decision for where you are today and into the future.
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