Preparing for Mortgage Renewal In Canada: 8 Essential Tips
Is your mortgage term ending soon? If you’re not ready to pay off everything you owe, you’ll have to renew your mortgage, refinance, or change lenders. Since renewing your mortgage involves signing a new contract, it’s essential to be ready with the correct information to make an intelligent choice.
If you’re a mortgage holder approaching your renewal date, here are some tips to help you understand your options and make the best decision.
Understanding the Mortgage Renewal Process in Canada: What to Expect
When your mortgage term ends, it’s time for renewal, [and this happens repeatedly until your entire loan term is finished. During renewal, you sign a fresh mortgage agreement with your current lender, which includes updated terms and rates. You can also switch to different mortgage products and adjust your payment schedule.
Renewing your mortgage can be straightforward – sign the new contract with the terms and rates offered. But you also have options: negotiate for better terms with your current lender or explore offers from different lenders to find the best deal.
8 Essential Tips to Guide Your Mortgage Renewal
How you approach your mortgage renewal depends on your situation. If you’re considering changes to your mortgage, monthly payments, or lender, it’s wise to start planning ahead. Early preparation gives you the confidence to proceed smoothly.
Here are some valuable tips to get you ready for your mortgage renewal.
- Consider Your Financial Goals and Status
Before you renew your mortgage, evaluate if your financial situation has changed since you first got the mortgage. Changes in income can impact what you can afford for the next term. It’s essential to discuss your options with your lender or mortgage broker.
Consider your financial objectives as well. Are you considering undertaking home improvements requiring extra funds or starting a family? Remember your future plans when renewing your mortgage, as the rates and terms you choose could impact those plans.
- Review Your Mortgage Options
Renewal presents a chance to ensure your mortgage meets your needs. Depending on your current situation, you can switch from a variable to a fixed-rate mortgage or modify your payment schedule to better suit your finances.
Also, consider your satisfaction with your current lender. If you believe another provider offers better rates, prepayment options, or more favourable terms, consider exploring switching lenders or refinancing.
Changing lenders might involve extra fees, which could eat into the savings you expect from a lower interest rate. Additionally, switching might require you to retake the mortgage stress test.
- Get a Grip on the Present Real Estate Market
Mortgage rates fluctuate based on the Bank of Canada’s prime rate. Staying informed about Canadian market trends can help you anticipate and prepare for potential in
terest rate increases.
If rates seem to be rising, you might want to consider renewing your mortgage early to secure a rate before they increase further.
- Begin Exploring Options in Advance
It’s beneficial to explore other mortgage offers before receiving your renewal statement. Checking mortgage rates as early as four months before your renewal date can provide insight into potentially better options.
If your credit score has improved since you initially took out your mortgage, you might be eligible for a lower rate either with your current lender or with a new one.
- Take Advantage of Your Prepayment Privilege
Consider your financial situation and the type of mortgage you hold; you might benefit from your prepayment privilege by making an annual lump-sum payment towards your mortgage alongside your regular payments. Remember that if you have a closed mortgage, there could be a prepayment penalty if you exceed the allowed amount or frequency stated in your mortgage contract.
With an open mortgage, you can raise your monthly payments or make lump-sum payments towards your principal balance without facing penalties. Both approaches can accelerate your mortgage payoff. Moreover, reducing your principal balance could improve your bargaining power when negotiating terms and rates at renewal.
- Negotiate for a Lower Mortgage Rate
You’re not obliged to accept the offer outlined in your renewal letter. If you’ve already explored other options, you can leverage any discounted rates or offers you’ve found elsewhere during negotiations. Lenders might ask for evidence of these offers from different providers. Alternatively, you can enlist your mortgage broker to handle this negotiation on your behalf.
- Think About Reamortizing Your Mortgage
You can reduce your monthly payment by extending your mortgage’s amortization period. Reamortizing can make your mortgage payments more manageable, especially if interest rates have increased or you’ve faced financial challenges.
The drawback of reamortization is that it will extend the time it takes to fully pay off your mortgage, resulting in higher total interest payments over the long term.
- Consult with a Professional
Talking to a real estate expert about your options is always beneficial. You can also contact your lender directly to explore renewal options. If you have a financial advisor, they can assist you in evaluating your financial status and determining your next steps.
A mortgage broker can also be invaluable, as they have access to a range of mortgage providers and possess market expertise.
Frequently Asked Questions About Mortgage Renewal
Here, we’ve addressed some frequently asked questions homeowners have about mortgage renewal and provided tips for a successful renewal process.
Can a bank reject my mortgage renewal?
Your mortgage provider, whether a credit union, bank, or other financial institution, can refuse to renew your mortgage if you’ve missed too many monthly payments. They might also deny renewal if your financial circumstances have deteriorated due to factors like job loss or increased debt, putting you at a higher risk of defaulting on the mortgage.
Does my credit score impact mortgage renewal?
Your credit score plays a role in your mortgage renewal. If your credit score has significantly dropped since obtaining your current mortgage, you might face denial for renewal. Similarly, if your credit score has improved, you could leverage it to negotiate a lower rate, refinance, or qualify with a different lender.
Is it beneficial to renew a mortgage ahead of schedule?
Renewing your mortgage early can be advantageous when mortgage rates are rising, allowing you to secure a rate before they increase. Additionally, early renewal may assist homeowners in promptly adapting their mortgage to changes in income, marital status, or plans to sell their home.
Lenders generally permit early mortgage renewal 4 to 6 months before your renewal date. Making changes outside this timeframe usually entails breaking your mortgage contract.
Conclusion
Mortgage renewal varies for each homeowner. Considering your financial status and objectives, consider modifying your existing mortgage or seeking a new lender during the renewal phase. While sticking with your current lender is often convenient, negotiating a better interest rate for the upcoming term and exploring alternative offers can strengthen your position. Communicating with your lender or broker can also provide valuable guidance in finding the right solution for you.
Looking for the perfect lender and mortgage fit? Kickstart your journey with Superb Mortgages.