At the end of their mortgage term, many people simply renew their mortgage under the same conditions without considering changes.
While mortgage renewal might not be exciting, it's a great opportunity to negotiate better terms that are more in line with your needs.
What is mortgage renewal?
Mortgage renewal is the process of extending your mortgage with your lender once the initial term ends. You mortgage term locks in a fixed interest rate for a period that can range from 6 months to 10 years, with 5 years being quite common. As the term concludes, you'll need to renew the mortgage to keep paying off the remaining balance.
If you pay off the mortgage in full before the term ends, renewal is unnecessary, and you can request a mortgage discharge to confirm that the loan has been fully settled.
When is the best time to negotiate your mortgage renewal?
To make the most of your mortgage renewal, it's crucial to plan ahead. Begin considering your renewal several weeks before your term ends. Some financial institutions even let you renew up to 6 months before the end of your contract.
Indeed, reaching out to your mortgage broker around four months (120 days) before your term ends can enhance your chances of securing the best possible interest rate.
Regardless, your lender is required to send you a renewal notice at least 21 days before your term’s maturity date. This notice should include:
- The remaining balance to be repaid at the renewal date.
- The current interest rate.
- The new term duration.
- The payment frequency.
- Any applicable renewal fees.
How to negotiate your mortgage renewal?
When it’s time to renew your mortgage, you have a valuable opportunity to tailor your contract to better suit your needs. Here’s how you can approach the negotiation process:
- Adjust the term duration.
- Switch interest rates (fixed or variable)
- Modify payment frequency.
- Explore other options.
To negotiate effectively, start by understanding your current financial needs and goals. This will help you make informed decisions and leverage the renewal process to optimize your mortgage terms.
Reassess your needs before renewing your mortgage!
Before renewing, take the time to reassess your needs and financial goals, as your long-term plans and situation may have evolved in the last few years. Small changes to your mortgage terms can make a big difference. For example:
- If you’ve had a child and need to adjust your budget, reducing your monthly payments could help maintain financial stability.
- If you’ve received a raise, increasing your payment frequency might save you a considerable amount in interest over time.
Take the initiative to negotiate the terms of your mortgage with your lender or broker. Without your involvement, your mortgage could automatically renew under the existing terms, which might not be optimal for you.
Questions to ask yourself before the renewal
To help you evaluate if your mortgage terms still meet your needs or if you should adjust your contract, consider asking yourself the following questions:
- How has your financial situation changed in recent years? Has it improved or worsened?
- Are you happy with the frequency and amount of your mortgage payments?
- Would you like to pay off your loan faster, and can your budget accommodate this?
- Do you need extra funds for major expenses, such as renovations or purchasing a vacation home?
- Would refinancing be beneficial?
- Are you planning to move or sell your property soon?
- Are you satisfied with the services provided by your current lender?
- Should you consider switching financial institutions, and what are the potential consequences of doing so?
How to find the best mortgage rate?
Reaching out to your mortgage broker a few weeks before your renewal date ensures you get the best rate available! Did you know your mortgage broker can lock in the current rate for your renewal? And don’t worry, doing so doesn't bind you to that rate if you find a more advantageous one later.
Additionally, you should also compare rates from other financial institutions to see if they offer better options.
Is renewing your mortgage early a good idea?
If your lender offers to renew your mortgage with a reduced interest rate, such as from 4.79% to 4.39%, it may seem attractive at first. However, it's important to be cautious and not rush into a decision.
Lenders may not always offer the best possible rate, and you could find a more competitive rate by checking with other financial institutions. Additionally, accepting an offer early might lock you into a rate that is higher than what could be available by your renewal date if rates continue to drop.
Additionally, be aware that renewing your mortgage before the renewal period may result in early repayment penalties. Typically, the further your renewal date is from your actual mortgage maturity, the higher the penalties are likely to be.
Therefore, take the time to thoroughly evaluate your options before renewing your mortgage early.
Shopping for your lender: mortgage transfer
Whether you're looking for better terms during your mortgage renewal or are simply dissatisfied with your current lender’s service, you could consider doing a mortgage transfer.
Comparing offers from various financial institutions can help you find better options. Remember, you're not bound to your current lender for life, and exploring alternatives can be beneficial.
Start evaluating your options a few months before your mortgage term ends. This will give you plenty of time to research and compare results. You don't have to wait for your lender's renewal notice to start the process.
Keep in mind that the new lender you choose will still need to approve your transfer request, as their approval criteria may differ from those of your current lender.
Transfer fees
When transferring your mortgage, be aware of the potential fees involved:
- Transfer or assignment fees.
- Processing fees.
- Property appraisal fees.
- Other administrative fees.
Therefore, make sure you understand all the fees associated with transferring your mortgage before proceeding.
The mortgage broker: your best ally for mortgage renewal
There are several compelling reasons to use the services of a mortgage broker. Beyond helping you select your initial mortgage terms, a broker offers valuable advice during your renewal period.
They will assess your financial situation and risk tolerance, explain the available options, and negotiate with various financial institutions to find the best renewal offer for you. Their services can save you time and money, and it’s completely free of charge!
Are you looking to renew your mortgage?
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