Mortgage Renewal

A house is more than just bricks and cement. Living in your dream house isn’t enough, this comfortable living requires a mortgage. A mortgage is a loan used in the purchase or maintenance of a house or any other real estate project. At the end of the mortgage tenure, one will need to renew their mortgage with the lender if they still owe money. 

Mortgage renewal is the window that provides the homeowner a chance to make edits to their renewal contract. This is done at the end of the mortgage term. In this blog, we will solve the mortgage renewal puzzle by understanding a persons needs, finding the best time to get a mortgage renewed, and how to get the best rates.

What is Mortgage Renewal?

If a homeowner still owes money to the lender at the end of the tenure, then mortgage renewal acts like an opportunity to negotiate the terms of the mortgage contract. When a person opts for renewal, they find themselves reassessing the interest rate, payment frequency, and tenure of the new loan and even opting for a different lender.

Mortgage terms can end anywhere between 6 months to 10 years. However, 5 years is the tenure in most cases. In Canada, the payment on a mortgage is made every month, which, based on the amount, may take up to 30 years to fully repay. This period is known as the amortization period. Therefore, the need to renew the mortgage arises. Mortgage renewal can be better understood with the help of an example.

For instance, you raised a mortgage of CAD 350,000 to purchase your home, and the interest charged by the bank was 7% on a 5-year term. The monthly payment made by you would be approximately CAD 2,000. If you fail to make the payments regularly, you will not be able to repay your mortgage and will need to renew it. After going through the renewal process with a new lender, the mortgage stands at perhaps a 0.50% interest rate. This change in interest will result in saving thousands of dollars.

From the above example, we gather that it might not be so bad to get your mortgage renewed. You might end up with a better and more cost-efficient deal.

How to Get the Best Mortgage Renewal Rate

A period of 30 years is really long. Any difference in interest rates between pre and post-mortgage renewal will create a vast difference in your pocket. There is a high possibility that the interest rate charged will be lower than what you had before. According to a report, 40% of Canadian homeowners carry their mortgage to a new term. To help this cluster get the best rates on mortgage renewal, we have compiled a few tips. Here are six tips to get you started:

The Rate Theory

It is evident that everything boils down to the interest rate. A person must be aware of the interest rates jumping in the market. They must compare the rates offered by their lenders to others. The research will educate them on the interest rates being offered by the various financial institutions and help them act better when negotiations take place.

There is Always a Lower Rate

It is time to put your knowledge to use and negotiate. Remember, there is ALWAYS a lower rate than what you are being offered. You should always try to bring down the interest rate offered by the bank as there is plenty of room. Do not be afraid to negotiate, as the posted rate is never the final rate.

The Best Rate is Just Around the Corner

Do not drool over a lender offering you a lower rate of interest. The best rate for you is right around the corner; you just have to spare a glance. There might be hidden penalties to it, so it is better to read the print before signing. For example, you might be sacrificing extra payments by agreeing to a lower rate of interest.

The Payment Game

It all comes down to the amount of payment you make. It is advisable to keep your monthly payments the same as the last one, even at a lower interest rate, so as to save the extra cash. The same amount paid at a low rate increases the wallets weight. You can also take advantage of the absence of the prepayment limits and make a little more on the principal.

Be Ahead of the Time

It has never hut someone to be ahead of a few things. You should start working on your mortgage renewal tips months before your mortgage term gets over. Do not leave your renewal to the last minute. It is ideal to start the process 120 days before the termination date; it prepares you for what is about to come.

The Lender Change

You should never be afraid to switch your lender. Each lender offers a different rate of interest. There is no law that restricts you from desiring a different lender for mortgage renewal. It is no secret that the rates of interest vary from lender to lender. The switch might demand a fee, but it is still better to pay a one-time fee rather than have a difficult contract.

What About a Really Early Renewal?

In order to get the best interest rate, one needs to be flexible. It would be appreciated to get an early renewal. The renewal process starts as early as 6 months to a year in advance. A really early renewal process gives you a chance to reevaluate your goals for now and for years to come. Early renewal has the potential to save you loads of money. 

The interest rate runs wild, going up and down. It is difficult to catch it, but what to do if you already have the desired rate? A really early renewal allows you to keep the current interest rate if you desire it or capture a lower rate. The newly locked rate may end up saving you both time and money. However, this comes at a cost. If you lock your rate beforehand, you might miss out on an even better rate through a different lender.

The major Canadian banks—RBC, TD, and BMO offer an early renewal of a time period of 120 days or 4 months while CIBC Bank allows a time period of 150 days or 5 months and Scotiabank allows you to renew your mortgage 180 days or 6 months before the termination date.

Mortgage Renewal Statement

The end of the mortgage term means it is to be renewed. However, there must be a balance owed. The mortgage renewal statement is provided by your lending agency 21 days before the end of your mortgage term. The lender must also let the borrower know if they will be renewing their mortgage 21 days before. You will be contacted by the lender via mail or email. The renewal statement is similar to the bank statement and contains the following information:

• The balance at the date of renewal.

• The interest rate charged.

• The frequency of payment.

• The time period.

• Any other charges or fees.

• Payment amount.

• Renewal date.

The mortgage renewal statement will also comprise a remark mentioning that the rate of interest will remain the same until mortgage renewal.

Review Your Mortgage Needs

It isn’t necessary that a person repay the full mortgage amount before its term ends. It is almost always that a homeowner renews their mortgage, but does one contemplate their mortgage needs? How do their needs affect their mortgage renewal process? Does their mortgage affect the better part of their lives? Mortgage renewal is a good time to reassess your needs. One might consider the following:

• The budget is important as it allows you to pay off your mortgage sooner and save on interest.

• Change their payment frequency.

• Making additional payments.

• Satisfaction with the services offered by the current lender.

• The wish to consolidate other debts with higher interest rates and increase the mortgage amount.

• If there is a requirement for optional life, critical illness, disability, or employment insurance.

It never hurts to be introspective. Maybe it is your life or your needs affecting the loan. We hope  this blog will help you navigate the mortgage renewal maze and let you come out of it as a winner.