When you first got your mortgage, you might have carefully weighed all the details, compared mortgage rates online, and done all your research to make sure you were getting the best possible mortgage rate and terms. Or, maybe you called your bank and took their first offer.
But now that your mortgage is coming up for renewal, what’s the best way to go about it?
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At the end of your mortgage term – typically five years, unless you specifically arranged something shorter – you will need to renew your mortgage. In most cases, your current lender will send you a document outlining all the terms of the renewal. Similar to when you got your mortgage in the first place, the lender will offer you a term (the length of the contract), mortgage rate, and payment schedule, as well as spell out any penalties associated with making additional payments. If everything looks good to you, a few signatures are all it takes to complete your renewal.
CMHC’s 2017 Mortgage Consumer Survey reports that 79% of Canadians stay with their lender when renewing their mortgage. But no matter how detailed you were when you first got your mortgage, your renewal is a chance to make sure you have the best rate.
That’s why you may want to consider moving your mortgage to another lender. Different mortgage lenders might be able to offer you a better interest rate. They may also have more preferential terms, like the ability to make extra payments or offer more flexibility if you need to break your mortgage before the term is up.
Your mortgage renewal is the perfect time to move to a new lender because it’s the only time you can refinance without paying your current lender any penalties. Your new lender pays your old lender the balance of what you owe, and you carry on.
So how do you renew your mortgage with a new lender?
Start by doing some early research. You’ll want to start this process about four months before your mortgage ends. This will give you time to find a new lender and take care of all the paperwork. It’s also the approximate length of time many lenders will hold a rate for you, so you won’t end up paying more if rates go up before your new mortgage starts.
If the rate is your motivating factor, compare mortgage rates online and contact the broker offering the lowest rate. Note that rates for renewals and refinances tend to be slightly higher than rates for new mortgages because of some rules that make them riskier for lenders.
If you’re motivated by something else, you may want to contact a mortgage broker and discuss your situation. A Canadian mortgage broker can help you find lenders that offer flexible prepayments, or whatever terms you’re looking for (within reason, of course).
This is also a good time to take out equity or get a home equity line of credit (HELOC) if you need one. Taking out equity simply means you’ll receive a cash payment and repay it with your mortgage. A HELOC is a revolving line of credit secured by your home that allows you to withdraw money. and repay it at any time. Both of these require a real estate lawyer and lots of paperwork, so it’s most convenient to do them at the time of your renewal.
Once you’ve found the right mortgage, the process will look similar to when you first got your mortgage. You’ll need to provide documentation to your mortgage broker (identification, proof of income, and bank statements are common requests).
You may also need to pay to have your property appraised, and pay minor fees to your old lender to discharge your current mortgage.
Then you’ll need to hire a real estate lawyer and make some time to sign a very large stack of papers. Your lawyer will take care of all the background work to register the mortgage and make sure all the money goes to where it’s needed on your renewal date. Then all that’s left for you to do is make your regular payments like you promised.
There are some times when opting for a straightforward renewal with your current lender will make more sense, however.
If you’re changing lenders to get a better interest rate, you might find that the expense of a real estate lawyer negates any savings in interest rate. For example, a $25 monthly saving on your mortgage payment adds up to $1,500 over five years. If that’s what it costs to hire a lawyer, it’s not worth the headache to break even. If you have to pay extra fees, like for a survey or to discharge your old mortgage, you might even lose money by switching.
If your financial situation has changed, you might also find it more difficult to move to a new lender. New mortgage rules require “stress testing” that forces you to prove you would be able to pay your mortgage at a much higher interest rate than most people pay. The 2017 Annual State of the Residential Mortgage Market in Canada study from Mortgage Professionals Canada estimates that five to 10 per cent of borrowers are at risk of failing the stress test. But renewals with your existing lender are exempt from the stress test. If you’re worried about your mortgage renewal, your mortgage broker can review your options with you and recommend the best course of action.
But for many people, the path to getting the best mortgage rate will be by comparing rates and considering a new lender at renewal. If you find you’ve already been offered the best rate by your current lender, then you know you’re making the right decision. If you find a way to save money, then you’re saving money.
When your mortgage renewal arrives in the mail, don’t assume your lender is giving you the most competitive offer. Do your homework, and if there’s a better deal to be had, consider renewing your mortgage with a new lender.
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