Breakups can be tough… but breaking up with your mortgage doesn’t have to be. What if I told you that you don’t have to renew your mortgage with the same lender as before? It’s nothing personal…it’s just that another lender is stealing your heart with lower mortgage rates and better offers. Forget the dating apps and go straight to a mortgage broker to play matchmaker and hook you up with a mortgage lender that suits your needs and offers you a better financial future.
It’s not you, it’s your mortgage rates…
Why bother paying more money when you don’t have to!? Working with a mortgage broker is usually completely free and can help you secure the lowest rate possible for your mortgage. Why have the hassle of doing your own research on what bank, credit union, or private lender you should choose? Mortgage brokers do all of that for you to save time and money! Plus, they will fill out all the paperwork that you might procrastinate on.
You can literally “break up” with your mortgage lender at any time but they can also “break up” with you
This is something you never want to deal with, if possible, but it happens more often than you might think for one reason or another. You should always read the fine print before signing a mortgage agreement. If you skip this step, it can lead to a big financial mess. It’s important to have a professional mortgage broker review your specific contract before breaking your mortgage agreement.
Now, it is normal to review your mortgage and “break up” with your current mortgage lender and find a new one to take advantage of lower interest rates. But again, make sure you are working with a professional to guarantee that you are doing it for the right reasons with minimal long-term impact on your savings.
Always read the fine print
At the end of the day, your mortgage contract typically favours the lender more than it does you. They loaned you the money so they tend to make sure they will get it back with interest whether the entire contract plays out or not. This is another good reason to work with an experienced mortgage broker and not the bank because a mortgage broker will know what to look for to protect your financial well-being. We all know life changes and sometimes those changes lead to breaking a mortgage or renewing your mortgage with a different lender.
Some low-rate mortgage lenders actually have a restriction in place so that you cannot break the mortgage early or they ensure there is a hefty fine if you do. This can mean that it’s not worth making a change just because the math doesn’t make sense financially. Another thing to keep in mind is that mortgage loans that offer a cash bonus for signing with them may have to be paid back in full or in part, if and when you break the mortgage.
Know the difference between a variable rate mortgage and a fixed-rate mortgage
A variable rate mortgage is when the rates fluctuate depending on the market. This is great when the interest rates are low but can cause you some financial distress if rates skyrocket. You never know where the market will be headed so it’s a gamble you must take to get a lower mortgage rate.
A fixed-rate mortgage is when your interest rate stays the exact same during the duration of your mortgage contract (normally 3-5 years before it renews).
When renewing your mortgage, you can choose which one makes more sense for you. Your mortgage broker can help review your options as well.
Now, if you’re looking to break up with your mortgage, it’s important to know which kind of mortgage you have because a penalty for breaking up your contract or failing to pay your mortgage payments, is calculated differently. For a variable rate mortgage, the penalty is 3 months of interest on your current mortgage loan. A fixed-rate mortgage has penalties using an IRD (Interest Rate Differential) which calculates the difference between your mortgage rate and the current interest rate that the lender could get for a loan at the time of breaking the contract. As it’s a complicated calculation, you’ll want to have your mortgage broker do the math so you will know for certain what the penalty will be before breaking your agreement. There is nothing worse than running the numbers yourself and then finding out later your calculations were a little, or a lot, off the mark.
Make sure you renew your mortgage before the end of your term
Have a plan in place so you don’t wait until the last minute to renew your mortgage. If you don’t already know the maturity date (the date your mortgage term ends), you will know it is time to renew your mortgage when you receive a renewal slip from your lender. The renewal slip contains a new mortgage rate and term offer which you can choose to sign and accept or decline. The lender must provide you with a renewal statement at least 21 days before the end of the existing term. Your lender must also notify you 21 days before the end of your term if they won’t renew your mortgage. When your mortgage term comes to an end, you have to pay off your mortgage in full or renew it.
Think about these financial goals before renewing your mortgage
- Does your budget allow you to increase your monthly payments so you can pay off your mortgage sooner to save on interest?
- Do you want to change the frequency of your payments?
- Do you want the ability to make additional payments on top of your regular payments?
- Are you happy with the services provided by your current lender?
- Do you want to consolidate your debts that have higher interest rates?
- What are your insurance needs (whether or not you still need life, illness, disability, or employment insurance)?
Also, think about your long-term goals. For example, if the new mortgage contract your lender sends to you is a five-year term and you plan on moving within those five years, you may want to consider a shorter mortgage term. Be sure that when renewing your mortgage, you choose the right mortgage products that meet your needs and will help you reach your financial goals.
Give your current mortgage lender a chance to come back with a better offer
You are able to negotiate with your lender. At the end of the day, they want to keep you as a customer if you’ve been paying them on time every month. Ask what they can offer, other than what they initially offered in the mortgage slip. See if they can improve their interest rates or their terms before you renew with a different mortgage lender.
Work with a reputable mortgage broker
If you’re wondering if renewing your mortgage makes sense financially, give me, Darren Robinson, a call at 705-315-0516. As your financial partner, I’ll help you navigate your mortgage contract, pointing out the pros and cons as we go through it. This will help you make an informed decision about whether breaking your mortgage today makes sense for you long term. Let’s take a look at your options and make a plan for growth in your financial future together.