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Understanding Mortgage Renewals, What You Need To Know

Understanding Mortgage Renewals, What You Need To Know

Couple Reviewing Mortgage Renewal

Did you receive a mortgage renewal notice from your bank and are wondering what that means? When you bought your home, you signed up for a 5-year mortgage term and that’s coming to a close. If you still owe money on your mortgage, it’s time to renew your mortgage term. But things have changed in the last five years, including interest rates and your financial situation. What do you do now?

When it’s time to renew your mortgage it is a good time to reassess your mortgage options and consider what changes you may need to make going forward. You might want to renegotiate interest rates, mortgage terms, and your payment schedule with your original lender, or perhaps it’s time to do some research on alternative mortgages that offer you and your family better options.

Before you make any decisions, let’s learn a bit more about mortgage renewals and what you can expect throughout the process.

First, What Is A Mortgage Renewal?

When you took out your mortgage, you committed to an amortization period, indicating the duration needed to fully repay the mortgage loan. Additionally, you agreed to a specific term, often around five years, though it can vary, and over that term, you’ve agreed to specific payments. For instance, if you secured a five-year mortgage in August 2019, your term would conclude in August 2024 and you’ve been making a regular payment to repay your mortgage loan over the span of those 5 years.

As your mortgage term nears its end, you’ll be required to either settle the remaining balance (meaning pay off the mortgage in full) or enter into a new mortgage agreement for the next term. This process of consenting to a new contract is termed a mortgage renewal.

What’s The Difference Between Renewing And Refinancing?

Renewing a mortgage is like giving it a fresh start, but there are key differences compared to refinancing a mortgage. When you renew your mortgage, it happens at a specific time, usually at the end of your term. You work with your lender to extend your mortgage agreement, often keeping similar terms as before.

Refinancing a mortgage, on the other hand, can happen at any time during your term. When you refinance, you end your current mortgage term to look for better options, like getting a lower interest rate or any other adjustment you need to make. But it might cost you extra fees, prepayment penalties, and you may need to qualify for the mortgage again when you do refinance.

What Is A Mortgage Renewal Statement?

In Canada, at least 21 days before your mortgage term ends, mortgage lenders are required to send you a renewal statement. This statement has to include: the remaining balance or principal owing on the mortgage on the renewal date; the interest rate they are offering; the frequency of your payments; the length of the new term; and any charges or fees that apply.

Your renewal statement must also clearly state that the offered interest rate will stay the same until the renewal date. In addition, it should indicate whether your mortgage will renew automatically if you don’t respond. And, if it does, you may not receive the most competitive interest rate and terms available. Some lenders won’t roll you into a full term but into an open mortgage with a much higher interest rate that is temporarily in place until you secure your mortgage renewal. That’s why you want to know when your mortgage is up for renewal and you’ll want to watch for the renewal statement so you don’t end up paying more than you have to.

Things To Consider Before Renewing Your Mortgage

When renewing your mortgage in Ontario, it’s not just about signing on the dotted line of your renewal statement and sticking with your current lender. It’s an opportunity to carefully assess whether your mortgage contract still aligns with your needs and financial objectives.

Consider whether you’re satisfied with your current mortgage terms and lender, or if it’s time for a change. To help you make this decision ask yourself these questions:

  1. Would a fixed or variable mortgage rate be more suitable for you? Some prefer the stability of fixed payments, while others like the potential savings of a variable rate.
  2. Are you interested in adjusting your payment schedule? For instance, switching from monthly to bi-weekly payments might save you money in the long run.
  3. Do you need to increase your mortgage to tap into more equity? Using equity for significant projects like home renovations is a common home improvement strategy.
  4. Are you content with the customer service provided by your lender? If not, consider areas where improvements could be made and look for lenders that might be better suited to your needs.

How Do You Get The Best Mortgage Renewal Rate?

Before making a decision on options when renewing your mortgage, it’s important to invest time exploring lenders, interest rates, and term lengths. In fact, it’s advisable to begin this process about 6 months before your current mortgage term ends to ensure you have sufficient time for thorough exploration. And, pay special attention to the length of your term. With the changes we have seen in interest rates if you can lock in for a 3-year mortgage with a decent rate as opposed to a 5-year mortgage, you’ll likely be able to renew at better interest rates when the 3 years is up given the current market conditions.

During this time you’ll want to gather information and request quotes from different lenders. This can be done by contacting banks directly or by consulting an experienced mortgage broker like myself who can provide you a list of competitive lenders, with the best rates and terms available. When comparing quotes, consider key factors such as interest rates, term lengths, amortization periods, estimated closing costs, and other associated fees to ensure accuracy in your comparisons. And, when in doubt, ask your mortgage broker for advice. It’s what we are here for, and it’s free to work with us, so why wouldn’t you take advantage?

What’s Involved In Renewing Your Mortgage

After considering any adjustments you may want to make to your mortgage and familiarizing yourself with current rates, it’s time to take the next step. As mentioned, you have the option to either renew your mortgage with your current lender or explore the possibility of switching to a new lender.

If You Renew With Your Existing Lender 

When you opt to stay with your current lender and prefer not to alter your mortgage terms, the typical process involves signing the mortgage contract provided with your renewal statement.

However, before committing, it’s worthwhile to explore renegotiating your interest rate. You’re not obligated to accept the rate initially offered by your lender. Instead, demonstrate your awareness by presenting the rates offered by their competitors and negotiating for a match or better offer.

If You Renew With A New Lender

If you’re thinking of changing mortgage providers, it’s best to wait until your current mortgage term ends to avoid penalties. If you do your research ahead of time, a mortgage broker can lock in a rate for you, protecting you from rate changes; they can also offer more lender options, simplify the application process, and keep your credit score safe.

But remember, the new provider might have different rules for things like income and credit scores. Switching could also mean extra costs like appraisal and legal fees, plus a new mortgage insurance premium. So, make sure you understand all the costs before signing anything new.

Is Your Mortgage Renewal On The Horizon? Give Me A Call.

If your mortgage term is ending soon and you want to find the best interest rates and options for your renewal, give me a call. As an experienced mortgage broker, I can look at your financial situation and help you decide on the best course of action for you going forward. I have access to many lenders so, even if your credit isn’t perfect, I can offer you options the banks don’t have access to. Reach out to me today at 705-315-0516, or book a consultation online, and we’ll find the mortgage renewal options for you together.

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