Renewal
Many homeowners believe it is best to remain with the bank or lender that issued their initial mortgage.
This is usually not the case.
Nearly 70% of people just sign their mortgage renewal papers without asking any questions. When it comes to renewal offers, homeowners believe they are receiving a fair price because they are loyal bank clients.
Nothing could be further from the truth.
Banks generate enormous profits on renewals at their regular rates since they know that customers are unlikely to shop around for a better mortgage.
Their priority is not to help you save money; their priority is to make a profit.
What is a renewal?
Most mortgages in Canada are set up so that if payments are made on time every month, the loan will be paid off in about 25 to 30 years. We call this the amortization period.
But mortgages have shorter periods than the time it would take to pay off the mortgage in full. These are called terms.
A mortgage term may be as short as six months or as long as ten years, with five-year durations being the most typical.
The term is the length of time that your mortgage contract with your lender is in effect. The contract spells out the terms and conditions of the mortgage. This includes your interest rate, the type of mortgage rate you have (fixed or variable), and any fees that come with the contract in certain situations, like prepayment penalties.
When your mortgage term ends (or is close to its maturity date), it’s time to renew your mortgage, as long as you’re not at the end of your amortization period or have paid off your mortgage in full ahead of schedule.
It is likely that the duration and interest rate of your mortgage contract will change at the renewal.
Who is a renewal for?
How does a renewal work?
Your renewal statement will contain mortgage-related details, such as:
- the outstanding balance or principal at the maturity date
- the interest rate
- the payment schedule/frequency
- the term length
- any applicable fees or charges
They are letting you know the term they are proposing, as well as the interest rate.
Other mortgage options, such as various term lengths or offers, could also be included on your renewal statement.
It is important to remember that the rate presented might not always be the lowest mortgage rate that they are able to offer, even though it may be their lowest posted rate.
Your contract may arrive in the mail for you to sign and return, or you may be given the option to sign it electronically, if you agree to this means of communication.
You must either completely pay off your mortgage when the term expires or renew it.
If your lender decides not to renew your mortgage, they must also let you know 21 days before to the end of your term.
What are the advantages of remaining with the same lender?
- It’s convenient. Your bank accounts, bank payments, and web portal logins are already set up.
- Your current lender is not required to requalify you.
- Change in financial circumstances (ex: laid off, etc.)
Re-signing with your current lender is the safest course of action if you are concerned that a new lender will not approve a loan or that you would fail a mortgage stress test.
What are the risks associated with renewals?
If your financial situation has deteriorated, your mortgage lender can elect not to renew your loan.
- late payments (mortgage )
- a drop in your credit scores
- loss of employment/income
What do I need to get started?
- Are there any major events happening in the near future? Travel? Surgery? A wedding?
- Has your income increased since the time the mortgage was last renewed? You may want to consider making higher payments to pay off your mortgage sooner.
- Do you require money for a debt consolidation, renovation, for your business, maybe to invest?
- Will you still own the property in 5 years? Or are you planning to sell?
- Will your current circumstances change within the next year? The next 2 years? The next 4 years?
Next, schedule some time with us to review your options, and plan for the future.
Even if we didn’t handle your mortgage financing, we would be pleased to examine your renewal at no cost to you and assist you in making the best decision, even if that meant sticking with your current lender.
We have solid working relationships with many lenders. We also have access to a large number of lenders who don’t disclose their interest rates and provide exclusive deals that aren’t promoted publicly.
We work for you, and our goal is to find you the best possible products and save you valuable time and money.
