Mortgage Renewals
When renewing your mortgage with your current lender, you have the opportunity to review your existing mortgage terms and potentially make changes to better suit your financial goals. Here's a guide on what is required and important to know when renewing your mortgage:
Mortgage Renewal Basics
Renewal Timing: Mortgage terms typically last between 1 and 5 years, with an amortization period that can be up to 25 or 30 years. At the end of each term, you’ll need to renew your mortgage unless you have paid it off.
Notification Period: Lenders are required by law to notify you about the upcoming renewal at least 21 days before your term expires. However, most lenders will contact you much earlier, often 3-6 months before the renewal date.
No Need to Re-qualify: If you renew your mortgage with your existing lender, you generally do not have to go through the qualification process again. However, if your financial situation has changed significantly, your lender might reassess your ability to handle the mortgage.
Renewal Offer from Your Lender
Initial Offer: The lender will typically send you a mortgage renewal offer, which outlines the new interest rate, term length, and payment options.
Default Renewal: If you do nothing, the lender may automatically renew your mortgage at a posted interest rate, which is often higher than the rate you could negotiate.
What You Can Negotiate
Interest Rate: One of the most important factors to consider is the interest rate. Interest rates fluctuate over time, and you might be offered a higher or lower rate than your previous term. Your lenders might not automatically offer you their best rate, so it’s essential to negotiate. Check current rates and be prepared to ask for a better deal.
Mortgage Term: You can change the length of your term. Consider if a longer or shorter term (e.g., 1-year, 3-year, or 5-year) is better for your financial situation.
Type of Interest Rate: You can switch from a fixed rate to a variable rate (or vice versa) at renewal, depending on what you’re comfortable with and current market conditions.
Payment Frequency: If you want to make payments more frequently (e.g., biweekly instead of monthly), or if you want to make accelerated payments, you can request changes to the payment schedule.
Amortization Period: Your amortization period will continue, but you may want to review your progress and consider shortening the remaining amortization to pay off the mortgage faster, or extending (where applicable) to lower your monthly payments.
Prepayment Privileges: If you plan to make extra payments or pay off your mortgage faster, ensure that your new term includes favourable prepayment privileges, such as the ability to pay down a certain percentage of the mortgage principal each year without penalty.
Ask for Discounts: Lenders sometimes offer loyalty discounts or waive certain fees, but you often need to ask.
Switching Lenders
Shop Around: You are not obligated to renew with your current lender. If another financial institution offers better rates or terms, you can switch.
Transfer Fees: Switching lenders may come with some costs, such as appraisal or legal fees. However, many lenders will cover these fees as an incentive to switch; check with your mortgage broker to confirm.
Portability: If you’re considering moving within the next term, check if your mortgage is portable, meaning you can transfer it to a new property without incurring penalties.
Renewing with a Balance
Adjusting the Mortgage Amount: At renewal, you may be able to increase or decrease the principal amount, depending on your financial situation and lender policies.
Debt Consolidation: Some homeowners take the opportunity to consolidate higher-interest debt into their mortgage balance at renewal.
Mortgage Default Insurance (CMHC)
If your mortgage was originally insured through the Canada Mortgage and Housing Corporation (CMHC) or another insurer, that insurance will continue upon renewal if you renew with the same lender. However, switching lenders may require re-qualification under current rules, especially if your loan is above 80% of your home’s value.
Documents and Information
Renewal Agreement: Your lender will provide a mortgage renewal agreement, which outlines the new terms and conditions of your renewed mortgage. You’ll need to sign this document to finalize the renewal.
Confirmation of Homeowner’s Insurance: Some lenders may ask for updated proof of homeowner’s insurance before finalizing the renewal to ensure the property is adequately protected.
Outstanding Balance and Payment History: Your lender will already have this information, but it’s good to review your mortgage statement to ensure everything is accurate.
What to Consider When Renewing
Fixed vs. Variable Rates: If you originally chose a fixed-rate mortgage, you may want to consider switching to a variable rate if market conditions suggest lower rates in the future. Some lenders offer a variable rate with a fixed payment, which provides the comforts of a predictable payment, while maintaining the benefit of a simple interest payable verses compounding interest payable experienced with a fixed rate. Conversely, if you prefer consistency in your payment, a fixed-rate may provide a sense of security. The extra interest costs, attributed to compounding interest, may be a small price to pay for your piece of mind.
Financial Changes: Consider any changes in your financial situation, such as increased income or debt, and how that may affect your mortgage needs. If you’ve paid off other debts, you might want to increase your mortgage payments to pay off your mortgage faster.
Future Plans: If you’re planning to move, downsize, or renovate in the near future, you might opt for a shorter mortgage term or a product that allows more flexibility.
Mortgage Stress Test
Stress Test for New Lenders: If you stay with your current lender, you generally won’t need to pass the mortgage stress test again. However, if you switch to a new lender, they may require you to pass the stress test, meaning you must qualify at the higher of the Bank of Canada’s qualifying rate or your mortgage rate plus 2%.
As of Nov 2024, non-insured mortgage borrowers are no longer required to pass a mortgage stress test to qualify for renewals if straight switching lenders.This policy maintains the original loan amount and amortization schedule.
Early Renewal
Pre-Renewal Options: Many lenders allow you to renew your mortgage early, typically within 4 to 6 months before the renewal date. This can be beneficial if interest rates are rising, as you can lock in a lower rate ahead of time.
Early Renewal Fees: In some cases, renewing your mortgage early can result in prepayment penalties if you break your existing term before its completion. Ask your lender if there are any fees associated with early renewal.
Options for Renewing
Auto-Renewal: If you don’t take action before your renewal date, some lenders may automatically renew your mortgage at a rate and term they choose, which may not be the best deal for you.
Active Negotiation: The best practice is to actively negotiate with your lender to secure favourable terms that align with your financial goals.
Renewing your mortgage with your current lender is an important opportunity to reassess your financial situation and ensure that your mortgage terms fit your current needs. Take time to research current rates, negotiate better terms, and potentially shop around for better deals before signing your renewal agreement. By being proactive, you can secure more favourable terms and save money in the long run.
