You’re sipping your morning coffee, feeling good about your decision to renew your mortgage with a new lender, when suddenly it hits you — there might be renewal penalties. Many Ontario homeowners get caught off guard by the fees and penalties that can lurk in the fine print of mortgage renewals. But don’t worry – with the right knowledge and strategies, you can handle these financial drawbacks like a pro.
Whether you’re a first-time renewer or a seasoned homeowner, understanding the potential costs associated with mortgage renewals is important to protect your hard-earned money. From hefty prepayment penalties to sneaky administrative fees, these expenses can add up quickly if you’re not prepared. But with some savvy planning and the right guidance, you can minimize these costs and maybe even avoid them altogether.
This guide will walk you through the common fees and penalties you might encounter, share strategies to keep more money in your pocket and explain how working with a mortgage broker can be your secret weapon in the renewal process.
The Common Fees and Penalties For Mortgage Renewals
Prepayment Penalties are often the most significant costs associated with mortgage renewals, especially if you’re breaking your current mortgage term early.
If you have a variable-rate mortgage, you’ll typically be charged three months’ interest. This is calculated by multiplying your current interest rate by your outstanding mortgage balance, then by 3/12 (for three months). For example, on a $300,000 mortgage at 3% interest, this penalty would be about $2,250
For fixed-rate mortgages, you’ll be charged with an Interest Rate Differential (IRD). This is calculated as the difference between your current interest rate and the rate the lender could charge today for a mortgage with a term similar to your remaining term. This penalty can be substantially higher than three months’ interest and it varies between lenders, so you should check your mortgage contract. The penalty can amount to tens of thousands of dollars.
Administrative Fees cover your current lender’s costs for processing your renewal. This can range from $200 to $500 and may include a renewal processing fee, account setup or transfer fee (if switching lenders), and a document preparation fee.
Appraisal Fees typically range from $300 to $500. This may be required if you’re switching lenders, requesting a significant change in your mortgage terms (e.g., borrowing additional funds), or your property value has changed significantly. Some lenders may cover this cost of an appraisal as part of a promotional offer
Legal Fees will usually range from $500 to $1,000 and are usually required when switching lenders. This includes updating the mortgage registration, title search, and title insurance (if not already in place). They may be lower if you’re using the same lawyer who handled your original mortgage.
Discharge Fees are charged by your current lender if you’re switching to a new lender. These
typically range from $200 to $350 and cover the cost of removing the current lender’s claim on your property.
Property Valuation Fee. Some lenders may charge a fee for a quick property valuation (not a full appraisal), which usually costs between $150 to $300.
Rate Hold Fee. If you’re switching lenders, some of them may charge a rate hold fee to guarantee an interest rate for a certain period before your renewal. This can range from $100 to $200 but is often waived if you proceed with the renewal.
Blending Fee. If you’re considering a “blend-and-extend” option (combining your current rate with a new rate for a longer term), some lenders may charge a fee, anywhere from $100 to $500.
It’s important to note that not all of these fees will apply in every situation. The specific costs you face will depend on your current mortgage terms, the lender you’re working with, and the choices you make during the renewal process. When considering a renewal, always ask for a detailed breakdown of all applicable fees. This will help you make an informed decision and potentially negotiate the reduction or waiver of certain fees.
Tips To Minimize Renewal Penalties
Time Your Renewal Right. Start looking into renewal options 4-6 months before your term ends. Renewing at the end of your term helps avoid prepayment penalties.
Understand Your Current Mortgage. Review your mortgage contract to understand potential penalties. Calculate potential prepayment penalties to make an informed decision.
Negotiate with Your Current Lender. Your existing lender may waive certain fees to keep your business. Ask about blending and extending your mortgage to avoid penalties.
Work with a Mortgage Broker. Brokers have access to multiple lenders and can often find better rates. They can help negotiate fees and explain complex terms and may have relationships with lenders willing to cover certain costs.
Use Prepayment Privileges. If your mortgage allows annual prepayments without penalty, use them before renewal to reduce your principal and potentially lower renewal costs.
How Working with a Mortgage Broker Makes Renewal Easier
If you’ve decided that you want to switch lenders when you renew your mortgage, working with a mortgage broker makes sense. Even if you’re not sure but want to consider your options, they can help you make an informed decision about your mortgage renewal.
Mortgage brokers are armed with tons of market knowledge. They stay updated on current rates and promotions across multiple lenders. Their negotiation skills can often secure better rates and terms than you might get on your own. They will clearly explain all potential fees and help you understand the total cost of different options. Plus, they’ll do all the legwork of comparing offers and managing paperwork. Even though you’re working with a broker to handle your renewal, many will offer advice throughout your mortgage term.
In Ontario, mortgage brokers are regulated by the Financial Services Regulatory Authority of Ontario (FSRA), ensuring a level of professionalism and accountability.
If You Have A Renewal Coming Up, Call Me To Talk About Penalties And Finding You The Right Mortgage
While fees and penalties associated with mortgage renewals can be significant, careful planning and professional guidance can help minimize these costs. Remember, every homeowner’s situation is unique and I can help you find the best solution for your specific circumstances. As a mortgage broker and a financial advisor, I can offer you all the advice you need to get the best renewal options and mortgage rates. Call me today at 705-315-0516, or book a consultation. Let’s get the most out of your renewal!