Mortgage Renewal 101
When it comes time to renew your mortgage, it may not even cross your mind that you can get a better deal.
In fact, one 2011 study showed that almost two-thirds of Canadians just let their lender automatically renew their mortgages for them.
While this option is certainly easier and requires little to no effort on your part, it’s almost always not the best method for renewal.
Mortgage renewal allows you to take a look at your mortgage terms and decide if they are right for you in your current financial situation. In many cases, your mortgage and financial needs will have changed since the last time you agreed on loan terms with your lender. You may have added extra income to your household, or want to change your repayment options.
If you own a home in Edmonton, Alberta, here's how to proceed when mortgage renewal time comes around.
What is a Mortgage Renewal?
In Canada, mortgages work differently than in many other locations. When you sign a mortgage deal, you usually obtain rates based on an amortization period. This is the length of time it would take for you to pay off the loan and interest entirely. Amortization periods usually go no longer than 25-30 years.
Of course, if you already have a mortgage, you know that renewal periods pop up well before the end of the amortization period. That’s because most mortgage renewals have individual terms that can be as short as 6 months and as long as 10 years.
Depending on the type of mortgage you have, your rate will stay the same throughout the term. When these terms expire, you have a few options:
- Pay the loan off in full (and throw a party)
- Renew the mortgage with the same lender
- Renegotiate with the same lender
- Shop around for a different rate with another lender
It’s becoming increasingly common for Canadians to opt for shorter terms so they can reevaluate their needs at that given moment and make changes to their rates. So, what should you do when it’s time for renewal?
BY THE NUMBERS
In 2015, The Canada Mortgage and Housing Corporation found among people renewing their mortgage about 86% stayed with the same lender.
What to Expect When It’s Time to Renew Your Mortgage
In most cases, you’ll know it’s time to renew your mortgage when your lender sends you a mortgage renewal notice in the mail. This usually occurs about 60 days before the end of your mortgage term (legally, a notice must come at least 21 days prior to the end of the term).
The notice should tell you the following:
- Balance and/or remaining principal
- Payment schedule and frequency
- Term length
- Interest rate
- Extra charges and fees
It will then ask you to sign and return the notice in order to renew your mortgage term. Of course, we would advise strongly against doing that because the renewal rate offered by your lender is NEVER the best rate available.
Some lenders give you the option for early renewal, which can occur 4 to 6 months prior to the end of the term. Even so, that is about the time you should start doing your research on rates. Maybe early renewal is your best option because your lender gives you a good deal for doing so, but you should always do your homework. When that mortgage renewal notice comes, you should already know the best rates on the market.
Problems and Difficulties to Watch Out For
As with anything, it’s always important to read the fine print on your mortgage contract. Some lenders may add extensive penalties for renewing with another lender. Others may have special conditions like early payment penalties that make it difficult or impossible to pay down your mortgage faster.
In many cases, you’re going to take a short-term hit if you switch lenders at renewal time. You can expect:
- Administrative fees
- Contract breaking penalties
- Appraisal fees
- Legal fees
But, the long-term benefits of a better or lower rate and a more financially appropriate term will outweigh the short-term costs. In fact, sticking with the same lender and the same rate will almost always hurt you in the long-run.
If your financial situation has been negatively altered since your prior mortgage deal, then your lender may decline to renew your mortgage altogether. If that’s the case, it may be difficult to find good interest rates. That’s why it’s vital to get all your finances stabilized before you renew to get the best rates.
How to Save on Your Mortgage Renewal
If you’re reading this and feeling a little overwhelmed by the mortgage renewal process, then you’re not alone. This is why many Canadians opt to renew with the same lender and the same rate. Indeed, you may feel like it’s easier to avoid the legwork and just sign the mortgage renewal notice.
Of course, a mortgage broker can do all that legwork for you. We can search the rates of dozens of lenders and find the one that works best for you and your current financial situation.
“We can audit your current mortgage and identify all of the factors that can save you money on your next renewal”
- Amortization periods
- Interest rates
- Early termination fees
- Prepayment options
Our services are free for mortgage renewals. And we operate in your best interest. You can always come to us with confidence knowing that you’ll get the best rate out there for you.
What you should do now
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