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5 Things to Know If Your Mortgage Renews in 2020

5 Things to Know If Your Mortgage Renews in 2020

Father playing with toddler daughter as she paint cardboard house

The year 2020…will be one to remember for years to come. The year that the world nearly stopped but then happily restarted a few months later. The year we all realized we were too busy for our own good. The year we had to socially distance ourselves in our homes. It’s also the year mortgage rates dropped to a historic all-time low which is why if your mortgage renews this year, or your mortgage rate was really high relatively speaking when you signed your mortgage contract, it’s time to review.

When you do that review though, make sure you keep these insider tips handy.

  1. Know the difference between a variable mortgage rate and a fixed mortgage rate.

A variable rate goes up and down regularly depending on the prime rate in Canada. If it goes up, your rate goes up. That’s why a fixed rate is attractive not only because it helps you set a cashflow budget but because you can rest easy knowing you are locked in at a great rate for your entire mortgage term.

  1. Plan long term when making any changes

As I’ve mentioned previously mortgage rates at the moment are historically low. That means that rates this low haven’t been seen in a long time. The longer you can lock in your low mortgage rate the better. Granted flipping homes is popular and you do need a mortgage for those homes too but, for your primary residence…if you plan to stay in your home for a 5 year term, the potential interest savings could be reinvested into life insurance, a vacation property or even cover that car payment that you’ve been paying for as an extra. It’s really worth running the numbers on.

  1. What comes down, must go back up

Long term planning aside, if you’re looking to buy a home this year, the low mortgage rate is beneficial but be wary of buying too much home right now. Even with a 5 year mortgage term when it comes up for renewal you’ll have to be prepared to afford the interest at the current mortgage rates at that time. For example on a $400,000 mortgage now at 2.34% is roughly $880 paid bi-weekly. Dial the clock forward 5 years when the mortgage rate regulates to 4.5% that same monthly payment jumps to $1106 bi-weekly. That’s an extra $452 a month you may not be prepared for.

  1. Talk options with your mortgage broker

Low rates don’t always equal the best mortgage. If you break your mortgage early you pay a penalty. Maybe you won’t be allowed to make lumpsum payments even though that was part of your financial plan originally. Perhaps your spouse gets laid off and isn’t able to contribute to the mortgage anymore so you have to downsize your home and sell earlier than you might have thought. These are all unknowns in life and happen to the best of us but, your mortgage broker can look at your current situation, your financial plan and the options of your mortgage to make sure that in likely future scenarios you’ll be in the best financial position possible to deal with whatever happens to arise.

  1. Switch lenders if it makes sense

Just because you got your first mortgage at the bank you’ve dealt with since you were a teenager, doesn’t mean you are obligated to keep your mortgage there. There are many mortgage lenders out there with many pros and cons to go along with them. Have an experienced mortgage broker take a look at your current mortgage to see if the long term savings of renewing with another lender or breaking your mortgage to sign on with another lender outweighs the costs of breaking your contract. In some cases, the numbers just won’t make sense to switch but in others, they absolutely will. That’s why it’s important to review your mortgage regularly and not just set it and forget it. You could be losing out on thousands of dollars over a 5 year term right now if you don’t take the time to evaluate the possibilities.

If you’d like to have your current mortgage reviewed and find out what your options are specifically in terms of mortgage renewals or potential savings, give me, Darren Robinson a call at 705-315-0516. I’m not just your friendly, neighbourhood mortgage broker, I’m your financial partner too!

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