Tips for renewing your mortgage
If your mortgage is set to renew in the coming months, you may be experiencing ‘renewal jitters.’ While you’re not alone, The King Team: Royal Heritage Realty wants to offer some strategies that can help reduce those nerves.
A new survey found 74 per cent of Canadians with a residential mortgage set to renew by March 2025 admit they’re concerned about the renewal because of historically high interest rates.
Many are even considering changing the type of mortgage product they sign or increasing the amortization period, along with a variety of cost-cutting measures. According to the survey:
- 74 per cent of mortgage holders currently have a fixed-rate mortgage, while 20 per cent have a variable-rate mortgage
- 40 per cent of variable-rate or hybrid mortgage holders are concerned about their upcoming renewal plan to switch to a fixed rate
- 64 per cent of variable-rate or hybrid mortgage holders say higher interest rates have caused their mortgage payment to hit its trigger rate and increased their monthly cost
- 76 per cent of variable-rate or hybrid mortgage holders admit higher interest rates have caused financial strain on their household, causing them to reduce spending and dip into savings.
Unless you’re able to pay the balance of your first mortgage off in full, you’ll need to renew it at the end of its term. Sixty-six per cent of Canadian homeowners who carry a mortgage do just that, according to RateHub.ca, a financial product comparison site and mortgage broker.
RENEWING YOUR MORTGAGE
If your mortgage contract is with a federally-regulated financial institution like a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term, the Financial Consumer Agency of Canada (FCAC) reports. Your lender must also notify you 21 days before the end of your term if it won’t renew your mortgage.
The renewal statement will include a new mortgage rate and term offer. While signing and sending back the offer is the most convenient route, The King Team encourages you to take a more proactive approach. Here are some things to consider as you weigh your next steps:
REVIEW YOUR MORTGAGE NEEDS
Unless you’re able to pay off your mortgage when your contract ends, this is a good time to review your mortgage needs and ensure you have the right product. The FCAC suggests answering the following questions:
- Can you increase your payments to pay off your mortgage sooner and save on interest?
- Can you change your payment frequency?
- Are you likely to make additional payments?
- Do you want to consolidate other debts with higher interest rates and increase the amount of your mortgage?
- Do you still need optional life, critical illness, disability or employment insurance if you have those products?
If your current mortgage term is a five-year fixed rate, the renewal statement will likely be for another five-year fixed. If you plan to stay in your home for that amount of time, that’s fine but if you’re thinking about downsizing or moving to a new city in the near future, consider looking for a three-year product instead, RateHub.ca advises. (www.ratehub.ca/blog/5-mortgage-renewal-tips/)
SHOP AROUND, NEGOTIATE
The FCAC recommends contacting several lenders and mortgage brokers a few months before the end of your current mortgage term to find out if any offer mortgage options better suit your needs. You may even be able to negotiate a better interest rate or qualify for a discounted rate with your current lender that’s lower than the rate quoted in your renewal letter.
Let your lender know about any offers you’ve received from other financial institutions or mortgage brokers and be prepared to provide proof. On average, mortgage providers only offer their existing customers a discount off their posted rate on a renewal statement. But that isn’t the lowest possible rate, even from your current lender, RateHub.ca says.
It believes using a mortgage broker is a good strategy when shopping around for a better rate. A mortgage broker can pull your credit report once and find a list of lenders who will work with you along with the best rates they can offer. If you aren’t ready to make a decision, ask your broker for a rate hold to protect you from any interest rate increases for up to 120 days. If interest rates drop in that time, you can negotiate to that new lower rate.
If you don’t take action, your mortgage term might renew automatically, which means you might not get the best interest rate and conditions. If your lender plans to automatically renew your mortgage, it will say so in the renewal statement, the FCAC notes.
SWITCH TO ANOTHER LENDER
If you decide to switch your current mortgage to another lender for a loan of the same amount, the new lender will need to approve your mortgage application and might use different criteria than your original lender. You may incur costs to change lenders, such as an appraisal fee to confirm the value of your property. If that’s the case, ask if your new lender can cover some or all your costs to switch.
If the amount of your loan increases and/or you extend the amortization period, you may need to pay a new mortgage loan insurance premium when switching lenders, the FCAC advises. If you already have mortgage loan insurance, provide your new lender with a copy of your insurance certificate.
CONTACT THE KING TEAM
The King Team: Royal Heritage Realty appreciates the pressure interest rates have placed on homeowners and those who remain on the sidelines in hopes interest rates will soon drop.
But remember that average home prices remain well below their peak at the beginning of 2022, offsetting higher borrowing costs to a certain degree. Buyers who can afford to enter the market now might be better off doing so to avoid the stiff competition that will come once rates begin to fall and home prices once again rise.
If you find yourself in a financial bind at renewal and are considering downsizing, please call The King Team. We’re here to offer valuable advice and will work with your budget to meet your needs.