Unless you can pay off your mortgage at the end of your term, you will be facing a mortgage renewal. This is your chance to take a closer look at your home loan and make some important decisions. Whether it’s about how often you pay, which lender you prefer, or whether you opt for a fixed or variable rate, there’s a lot to think about. Preparing for your mortgage renewal ahead of time can help you snag a better rate and possibly better mortgage terms. So, to help you do just that, I’ve outlined a few things you’ll want to start thinking about before you get your renewal notice in the mail.

What Is A Mortgage Renewal?

When you’re up for a mortgage renewal, it’s all about negotiating a new deal with your lender. In Canada, mortgages have an amortization period, meaning the time it takes to pay off your loan in full, broken into different terms. Each term sets the lifespan of your mortgage contract. So, let’s say you have a 25-year mortgage split into five five-year terms – you’ll be signing a new mortgage contract at the end of each term until you’ve paid off the overall mortgage loan in full.

For example, if you secured a five-year fixed-rate mortgage in November 2019, your term will end in November 2024. Unless you’re able to pay off the remaining mortgage balance by then, you’ll need to go through the mortgage renewal process.

What’s The Process To Renew Your Mortgage?

The mortgage renewal process isn’t complicated. Your current mortgage lender will make you an offer for a new mortgage term. You can choose to sign it and renew your mortgage contract with the proposed terms, try to negotiate a better deal, or look into renewing your mortgage with a different lender. 

Whichever way you decide to go, it’s best to review interest rates and mortgage options so you’ll need to spend some time – either with your current lender or a mortgage broker – before you renew so that you know exactly what your options are while allowing you time to negotiate. Being willing to ask for a lower interest rate, could save you thousands over the life span of your mortgage so make sure you don’t skip that part.

When Is The Best Time To Start Your Mortgage Renewal? 

In general, it’s wise to kick off the mortgage renewal process sooner rather than later. This way, you’ll have ample time to compare current mortgage rates from different lenders, assess how they fit with your financial situation, and haggle for the best terms for your next stretch of the loan.

Some lenders recommend starting the renewal process about four months before your renewal date. Others might even let you renew up to six months in advance without slapping you with a prepayment penalty.

Of course, you can also sit tight and wait for your lender to send their renewal offer. Federally-regulated financial institutions — Canada’s big banks — are required to send you a renewal statement at least 21 days before your renewal date. But that won’t give you a lot of time to research other options.

What Is Included In Your Mortgage Renewal Offer?

A renewal statement will include the following:

• The remaining amount you owe on your mortgage.
• The interest rate (with the assurance that this won’t increase until your renewal date).
• How often you make your payments.
• The term – usually 5 years but, if they don’t offer them to you, you can ask for shorter terms.
• Any other charges and fees that apply.

If you’re happy with the renewal offer, you can sign it and be finished with the renewal process until the end of your next term.

Can Your Mortgage Automatically Be Renewed By Your Lender? 

If you don’t respond to a renewal offer before your renewal date, some lenders might just go ahead and automatically renew your mortgage. Your renewal statement will specify this.

However, while automatic renewal might seem convenient, it could end up being a headache. Your lender might switch you to a shorter mortgage term with a higher interest rate through the automatic renewal process. And even if they don’t, going the automatic route means surrendering all your bargaining power when it comes to negotiating the best rate.

What Are Your Options When You Renew Your Mortgage Term?

Option 1 – Stay With Your Current Lender

Sticking with your current lender for your mortgage renewal is usually the easiest route to take. Whether you decide to accept their initial renewal offer or negotiate for something better, the process typically involves just signing a new contract and keeping up with your payments.

It’s not necessary to requalify, especially if you’re borrowing from a reputable lender (an “A lender”), as there usually aren’t any renewal fees involved. However, if you’re dealing with a private lender, be prepared for potential renewal costs.

Some lenders offer a blend-and-extend option, which lets you negotiate your interest rate before your mortgage term ends. This allows you to extend your current term at a lower rate by blending a new, current interest rate with your existing one.

Also, if you have offers from other lenders with better rates or terms, your current lender might be willing to match them. Providing proof of these offers can strengthen your negotiation position with your current lender.

Option 2 – Look For A New Lender

If your current lender can’t match the rates offered by other lenders or isn’t willing to offer you a renewal, you’re not stuck – you can renew your mortgage with a different lender. However, switching to a new lender comes with its own set of challenges and expenses, such as:

• Requalifying: Your new lender will need to reassess your financial situation to ensure you can afford the terms of your new mortgage. This means your credit score, income, and debt ratios will all need to be re-evaluated.
• Facing another stress test: If your mortgage is uninsured, you may have to undergo another mortgage stress test as part of the requalification process. If mortgage rates have risen significantly since you took out your initial mortgage, you might not qualify for the amount you need.
• Paying fees: Expect to shell out for various fees, including the cost of a home appraisal, discharge fees, registration fees, and other administrative expenses. Some lenders might be willing to cover some of these fees to win your business, so it’s worth asking about your options before signing off on the first offer given to you.

How Can You Get The Lowest Mortgage Rate?

Chances are that, if you’re renewing a 3 or 5-year mortgage term, your mortgage rate is going to go up. So, whether you’re renewing with your current lender or looking for a new one, be prepared for a payment increase.

Getting a renewal offer from your current lender means you won’t need to go through the qualification process again. This means any financial improvements you’ve made in the past few years won’t directly impact the renewal offer. However, focusing on these improvements could bolster your case for negotiating a lower rate with your lender especially if you have a competing offer from another mortgage lender.

If you choose to renew with a different lender, your rate will be determined by their current rates and an evaluation of your financial situation. Factors such as income, debt, and credit score may all influence your ability to secure a better rate. Keep in mind that if fixed or variable mortgage rates have risen since your last mortgage term began, you should prepare for potentially higher costs in your next term which might mean making a few cuts in your budget.

What If Your Current Lender Won’t Renew Your Mortgage?

If your financial situation remains stable and you’ve been responsible with your mortgage payments, your lender will typically opt to renew your mortgage. However, if your income has been disrupted or you’ve encountered payment issues during the previous term, your lender might hesitate to renew your mortgage due to increased risk.

In such cases, it’s not necessarily cause for alarm, especially if you’ve initiated the renewal process early. B lenders specialize in providing mortgages to borrowers with lower credit scores who may not qualify with traditional banks. While B lenders often charge higher interest rates, their mortgages are usually short-term solutions, typically lasting three years or less. During this period, the goal is to improve your financial standing so that you can secure a renewal with an A lender at a lower rate once the term ends.

If a B lender isn’t an option for renewing your mortgage, you may need to explore financing with a private mortgage lender. While the qualification criteria may be less strict than with B lenders, the rates and fees are likely to be significantly higher.

When it comes to renewal time, especially if you have concerns about affordability, it’s wise to consult with a mortgage broker. A seasoned broker like myself can connect you with lenders and rate offers that may not be accessible otherwise, while also offering valuable insight and guidance throughout the process.

A Few Tips For Your Mortgage Renewal

These are four things I always recommend you do to gain a little more control over the mortgage renewal process:

1. Take A Look At Your Finances

Before diving into your next mortgage term, it’s essential to have a solid grasp of your overall financial situation.

For instance, if your household income has seen a boost, you might be in a position to handle higher payments in the next term, which could accelerate your mortgage payoff. Conversely, if you’re experiencing tighter cash flow, extending your amortization period might be necessary to secure more manageable monthly payments.

Fortunately, you don’t have to tackle this assessment alone. Seek guidance from your bank’s mortgage advisor or your trusted mortgage broker. Additionally, you can get a rough idea of future mortgage costs by using a mortgage calculator.

2. Get Familiar With Your Mortgage’s Options

Renewal offers a chance to tweak your mortgage for better manageability. You might opt to adjust the frequency of your payments, whether increasing or decreasing them. You could also consider switching from a variable interest rate to a fixed one. Just be sure the long term benefit is there before doing so.

3. Prepaying Can Help Reduce Your Principal 

Before renewing, it’s wise to focus on reducing your principal as much as possible. While this may not directly impact the rate you’re offered, it means there’s less mortgage amount for the bank to charge interest on, which means you pay off your mortgage faster.

Many mortgages from A lenders offer options for prepayments toward the principal each year. Typically, you can either boost your monthly payment or make lump-sum payments, up to a specified limit. However, it’s crucial to stick to the prepayment limits outlined in your mortgage contract to avoid potential penalties on any excess amount paid.

4. Don’t Just Sign, Negotiate

Negotiating with your lender during renewal is essential. Lenders understand that renewing, especially if rates have increased recently, can put borrowers in a tough spot. The combination of high mortgage rates and the mortgage stress test can make it challenging to qualify for a favourable mortgage elsewhere, giving your current lender less incentive to offer you a competitive rate.

Even if you’re not seriously considering switching lenders, it’s worth exploring offers from a few competitors. Why? Presenting these offers to your current lender can potentially persuade them to provide a better deal.

If negotiation isn’t your strong suit, consider enlisting the help of a mortgage broker. They can advocate on your behalf and handle the negotiation process for you.

Is Your Mortgage Up For Renewal? Call Me, I Can Find You The Best Rates and Options Available

When it comes to renewing your mortgage, being informed and proactive is key. Whether you’re thinking about sticking with your current lender or want to explore options with a new one, I can assist you in selecting the optimal choice for your financial needs. With my support, you can be confident in securing the best mortgage rates and options in today’s market. Reach out to me today at 705-315-0516, or schedule a consultation now. Let’s work together to make your mortgage renewal less stressful and more advantageous for you.