What happens at mortgage renewal time?
Unlike the United States, Canadian mortgages have a Term period and an Amortization period. The end date of the current mortgage term is called the maturity or renewal date. Your current mortgage contract ends on the maturity date. That means the following for you as a borrower:
- The borrower has to renew their mortgage for a new mortgage term and conditions on the renewal date.
- It’s possible to make changes to the mortgage without incurring penalties.
- You can move the mortgage to a new mortgage lender. They might offer a different mortgage term length, interest rate or better terms & conditions,
Since this only happens at the end of a mortgage term it is a unique opportunity that every borrower should carefully and fully exploit.
Part 1: Mortgage Renewal Tips That Will Get You Ahead:
Statistics show that 85% of Canadians sign and return the mortgage renewal terms offered by their current lender at the time of the mortgage renewal. Not only is this potentially a costly mistake, but it’s also a lost opportunity to get a better mortgage to leverage the equity in the property, better and healthier terms and market conditions.
Consider the following points well in advance of the mortgage renewal date. They will help you to avoid major mortgage pitfalls and ensure that your new mortgage is right for you:
Most lenders don’t always offer their best terms and rates up-front. Let a mortgage broker look for options for you and negotiate on your behalf.
Don’t be one of the 85% of Canadians that auto-renew their mortgages with their current lenders. This is a costly and unnecessary mistake. Lenders know that most clients have busy lives and don’t read the mortgage terms behind their shiny interest rates on the renewal offer. They can hide less than ideal terms in the commitment letter or Standard Charge Terms.
“The consequences of a poor mortgage choice will affect you much longer than the inconvenience of considering and qualifying for a new and better mortgage.”
Lenders have no obligation to offer you the same mortgage terms you previously had. They might offer to renew your mortgage at lower than the market rate, but the terms will most likely be ominous and not good for you.
Since most clients only focus on interest rates, they don’t review their mortgage terms. They don’t always have the knowledge to differentiate between various mortgage products. This leaves them stuck with unsuitable and limiting mortgage products. The wrong mortgage product can be very costly.
Lenders will usually start to call clients 6 months before the renewal date of their current mortgage. They’ll offer limited time, special rates, for early renewals. These offers are rarely very “special”. They’re actually dangerous since lender can’t disclose mortgage terms to the borrower over the phone. These high-pressure sales tactics are retention strategies and not in the best interest of borrowers.
Remember, it is a brand-new mortgage with many options, so don’t settle for the first product offered to you. Meet with your mortgage broker at least 6 months before the maturity date. Review various options and solutions and fix any potential credit, income problems. This will ensure you get the right mortgage at the mortgage maturity date.
Planning your mortgage should not be a long and tedious process. Your broker should be able to guide you through the process. Their job is to simplify the process so you get the best mortgage. Read all about planning your mortgage renewal in Part 2 of this series of articles about renewing your mortgage.
Once you have closed your mortgage for the new term you will pay penalties to make further changes that exceed your mortgage privileges. So, make sure you take the time to get the right mortgage for your needs.
Mortgage rules have changed significantly the last few years. This might affect your mortgage rate, terms and product range, based on the mortgage that you want and the type of mortgage that you choose.
Ask your mortgage broker to educate you about the new mortgage rules that will affect your mortgage choices.
If your mortgage closes after the maturity date with your current mortgage lender you are at the mercy of that lender. Your existing mortgage company might automatically lock you into an unwanted, short-term mortgage at a much higher interest rate. To close your new mortgage on time, you need to give your mortgage broker enough time to look for a suitable mortgage for you.