Experienced home buyers will tell you that over the lifetime of a mortgage, you’ll definitely have to renew at a higher rate at some point. For the past six years, homeowners have been lucky to be in the position of renewing at similar, or lower rates. This fortunate streak won’t last forever.
In order to prepare for renewing your mortgage when rates go up, it’s recommended that you create a financial plan that accounts for an inevitable rise in interest. Being able to adapt and plan for the absorption of higher rates into your budget is always a good thing. However there are some other steps you can take to tackle a rate change issue at the time of your mortgage renewal.
Banks can be irritating with their generally intrusive client calls and telemarketing. But if you see them calling you – and your mortgage is coming up for renewal in the next six months – you should answer the phone. Talking to them & your mortgage broker about an early mortgage renewal can save you more money than you might think. Early renewals are one of the most effortless mortgage transactions. You can get out of your current mortgage at no cost (or penalty) and move directly into a new one with the same lender.
The reason this is so easy is because once your mortgage is up, you have an opportunity to be a “free agent,” just like in baseball. This is your chance to shop around for better rates. Banks used to drag their heels when it came to sending renewal notices to clients, because this short time frame reduced the time borrowers had to shop around for the better deals out there. Today, banks are reaching out to clients over six months in advance of renewal time, to lock clients up ahead of time and prevent them from defecting. Talking to your mortgage broker & the banks can help you leverage a better rate as well as the possibility of more options, which can definitely be worth the 10 minute call before signing your renewal.
The good news for home buyers is that now, the tactics of the banks involve offering more affordable interest rates in order to entice you into an early renewal; and lowering your mortgage rate immediately is a great reason to seize an early renewal opportunity. Another excellent reason to renew early is to get ahead of any rate increases on the horizon. If you ‘re planning to live where you are for another 5+ years (and see no reason to refinance or break your mortgage) an early renewal through your broker is a wonderful idea.
If you’re planning to break your mortgage, then renewal gives you a chance to look around for better terms, from other lenders. Just keep in mind that you can’t do an early renewal if you intend to change lenders. What you can do is get a new lender to hold a rate for you for 120 days in advance of your renewal date, giving you an insurance policy in case rates rise until you’re ready to pull the trigger.
Just remember, that when it comes to banks as lenders, there can be hefty penalties involved with breaking your mortgage before it comes up for renewal. Talk to your broker about finding lenders with less aggressive penalties, who offer rates comparable to those provided by your bank.