Getting a mortgage is a long-term commitment. The majority of standard mortgages range from 20-25 years, but there are multiple “terms” throughout this amortization period. As one term ends, it is time to renew your mortgage. More than simply signing on the dotted line, a mortgage renewal is an opportunity to re-evaluate whether or not your current structure is working for you.
At its core, a mortgage renewal is a process of taking the outstanding amount of your mortgage and renewing it under new terms. At this point, new terms may have different (hopefully lower) interest rates, offer the option to change payment frequencies, and even the ability to switch lenders.
Understanding the Mortgage Renewal Process
When you sign your initial mortgage, the terms are usually fixed for the length of the term, often around five years. During this term, the details of your mortgage are fixed in place. After this period, the lender will reach out to you about 3-4 months before your renewal. While it is possible to sign these letters and continue with the proposed term, it is always better to consult a mortgage expert first as there are likely better terms available on the open market.
Before committing to a new contract, consider the following:
How Has Your Budget Changed? What worked financially at the outset of your mortgage might not be the ideal situation now. If your income has increased, it might be a good idea to increase your payments accordingly. Additional payments or higher amounts can help to pay down your mortgage faster, avoiding the additional interest that accumulates over time.
Is Your Frequency Working For You? Mortgages come with the option of monthly or bi-weekly payments. Bi-weekly payments create additional payments throughout the year, enabling borrowers to chip away at the principal of a mortgage faster than with monthly payments. Adversely, if you began your mortgage with bi-weekly payments but are finding this structure difficult to keep up with, renewing your mortgage is an opportunity to change your payment frequency.
Have You Acquired Other Debt? High levels of debt can be crushing. There are plenty of Canadians out there who carry the title of “house poor.” This means that you are able to own a home but do not have other expendable income or are carrying debts with higher interest rates. A mortgage renewal is an opportune time to consolidate debt into the equity of your home, getting one lump sum to use as you see fit. This frees up money to use to pay down existing debts, prolonging your mortgage and saving on the higher rates of interest that come along with credit cards, loans, or lines of credit.
Are You Happy With Your Current Lender? Not all mortgages come from your regular financial institution. While one bank might have turned down your application, a lending agency might have been happy to accommodate your home loan. Consolidating your financial portfolio into one institution can be better for ease of use through tools like online banking or a regular representative. Switching mortgage lenders at renewal can come with certain advantages, such as lower interest rates or perks from the institution. Don’t be afraid to shop around!
What An Expert Can Do For You
For many Canadians, homeownership is a huge step toward achieving their financial goals. In the same way that a potential homeowner will have to apply for an initial mortgage, shopping around for a new lender works much the same way. In the same way that it is essential to fully understand all of your mortgage options, it is crucial to comprehend renewal options.
Please note that the best way to get a complete picture is to consult with a mortgage expert. Specialized advice can help when switching from a fixed to a variable rate, changing the frequency of your mortgage payments, and help to choose the right lender for you. Each of these seemingly small tweaks can help to save money and provide security.
Expert advice can help to create an ideal situation for your mortgage loan. It can be difficult to understand the negotiation process, but having a mortgage professional who will fight for your best interest can help to make a world of difference. Just because you are given one offer does not mean that it is final. You might be entitled to a lower interest rate than your initial offer indicates. This is the point where having a professional in your corner can help to shop around and examine all of your options, cutting costs and helping to build your financial future.