Mortgage Renewals Explained
Mortgage Renewals – What happens at renewal time?
Mortgages in Canada have set term lengths and mortgage renewals present you with a unique opportunity. The end date of the current mortgage term is called the maturity date or the renewal date. Your current mortgage contract ends on the maturity date. With Mortgage Renewals you have the choice to look for a new mortgage with a new term length, interest rate and terms and conditions. This is an incredible opportunity that every borrower should exploit. 85% of Canadians just sign and return the mortgage renewal terms offered by their current lender. The majority never take advantage of the rare opportunity presented with mortgage renewals.
- Since 85% of clients just agree to the mortgage renewal terms they receive from their current lender; most lenders will not offer their best interest rates and terms up-front.
- Lenders have no obligation to offer you the same mortgage terms you previously had. They might offer a renewal at a slightly lower rate, but at ominous terms. Since most clients only focus on interest rates, don’t review their mortgage terms and cannot differentiate between various mortgage products, they often get stuck with unsuitable and limiting mortgage products. The wrong mortgage product can be very costly.
- Lenders will call clients 6 months before the mortgage renewal date and offer limited time, special rate offers for early mortgage renewals, over the phone. These are rarely very “special” and doesn’t benefit the borrower since no mortgage terms can be disclosed over the phone. Lenders do this only because they want to retain clients before more options become available to them at the maturity date.
- Always review your mortgage options. Meet with your mortgage broker at least 6 months before the maturity date to review your options.
- Plan your mortgage. It needn’t be a long and tedious process. Consider the following in your planning:
- How much equity do you have in your property?
- Do you have any wise plans for this equity such as cottage, rental property, etc?
- Do you want to create a new mortgage that will allow you to use this equity if you need to, without it losing you any money of you don’t use it?
- When do you want to be mortgage free?
- Do you have any renovation plans?
- Do you have any rainy-day savings?
- Is your family expanding? We want to make sure you have the best cash flow possible. h. Are there any debts preventing you from moving forward with your lives?
- Review your credit. Make the necessary corrections to maintain excellent credit.
- Review market conditions. What is right for you; fixed or variable?
- Review your current lender and terms and conditions. Make sure your new mortgage is the best mortgage for you. Don’t only focus on the interest rate; get the best overall mortgage.
- Consider any relocation plans and make sure you have the right mortgage for it.
- Remember, once you have closed your mortgage you will pay a penalty to make any further changes that fall outside your mortgage privileges.
- Close on the maturity date. If your new mortgage does not close on time your existing mortgage company might automatically lock you into a new short-term mortgage at a much higher rate. It is essential to close your new mortgage on time.
It is important to differentiate between a mortgage renewal or sometimes called a “switch” and a refinance of the mortgage at the maturity date. Whether it is a switch or refinance, your mortgage broker should be able to arrange your new mortgage for you.
A renewal or switch is when a borrower either keeps their mortgage with the same lender or moves it to a different lender on the mortgage maturity date. For the mortgage to be considered a renewal or switch, the following must be true:
- No extra money can be taken out of the mortgage. Some lenders may allow a small amount such as $2,000 etc to be taken out.
- No components, such as a Line of Credit, or additional mortgages can be added to the current mortgage.
- The amortization must continue where it ended at the current term. E.g. If the amortization was 20 years at the end of the last term then the amortization must be 20 years at the start of the new term.
- The same people on the current mortgage and Title must remain on the mortgage for the new lender or new term.
- A mortgage renews at the market interest rate and terms of the new lender.
- It is important to note that are no costs to the borrower at closing even if the mortgage moves to a new lender.
- If the mortgage switches to a new lender, the borrower has to qualify for the new mortgage.
- There are no mortgage penalties at the renewal date
- Rental properties, properties from alternate lenders, collateralized mortgages, and properties with more than one mortgage secured against them (including Home Equity Lines of Credit (HELOC)) don’t qualify for a normal switch; they are always refinanced at maturity.
- If you have no employment or credit problems at the time of the mortgage renewal, but you have paid your mortgage on time for the entire term, your existing lender will usually renew your mortgage without verifying income etc. In this case, the borrower should choose the best renewal option and return the renewal agreement to the existing lender. Without verifiable income and good credit, the borrower has no option to switch lenders or to refinance the mortgage with a different lender.
Refinance at maturity is when the borrower has to renew their mortgage, and also wants to make changes which aren’t allowed under a renewal or switch. The following apply to mortgage refinances at maturity:
- Extra money can be taken out of the mortgage for items such as renovations, paying off debt, etc.
- The amortization can be changed to anything allowed by the new lender.
- A person (s) can be added or removed from Title.
- Unlike a refinance done in mid-term, no mortgage penalties are charged for refinances at the maturity date.
- Legal fees and appraisal costs apply to refinances. If no one is removed from Title, then a lawyer does not have to be used to close the mortgage. Other legal entities such as First Canadian Title (FCT) can be used at a much-reduced cost.
- Since 30 November 2016, new rules apply to mortgage refinances.
- The mortgage is refinanced at current market interest rates and terms for the new lender.
We would be happy to assist you in planning your upcoming mortgage renewal, reach out today!