Preparing for a mortgage renewal is the perfect way to ensure you can take advantage of a more affordable interest rate. Chances are, your original home loan featured an introductory fixed rate of interest for the first few years. That introductory period will now be over, so it’s time to consider what you want the next stage of your home loan to look like.
What it means to renew your mortgage
When you obtain a mortgage with a lender, your loan is legally binding for a specific period of time. This is called the term of the mortgage, and it can be as short as a few months or as long as five years or more.
If you do not pay off your mortgage in full at the end of each term, you will need to renew it. It may take multiple terms to pay off your mortgage in full.
Your renewal statement
The mortgage contract you signed with your lender must include a renewal statement at least 21 days before the end of the existing term. If your lender decides not to renew your mortgage, they must notify you at least 21 days before the end of your current term.
The lender will provide you with paper or electronic statements, if you consent to receiving them in this manner.
A renewal statement must contain the following information: the balance or remaining principal at the renewal date, interest rate, payment frequency, term and any charges or fees that apply.
The renewal statement must also note that the interest rate offered will not increase until your next due date.
Review your mortgage needs
When your mortgage term comes to an end, you have to either pay off the loan or renew it. This is a good time to review your financial situation and make sure that you have the right mortgage product.
To help you find the right mortgage, consider if:
- your budget allows you to increase your payments to pay off your mortgage sooner and save on interest
- you want to change your payment frequency
- you’re likely to make additional payments
- you’re satisfied with the services offered by your current lender
- you want to consolidate other debts that have higher interest rates and increase the amount of your mortgage
- you still need optional life, critical illness, disability or employment insurance
If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you. Take the time to describe your financial situation so that you can be sure to get what’s right for you. Don’t hesitate to ask questions and make sure you understand what’s being offered.
Shop around
You can move your mortgage to another lender if their conditions better suit your needs.
Planning ahead is important when it comes to getting a mortgage. Start shopping around a few months before the end of your term, and contact your mortgage broker to check if they offer options that better suit your needs.
Negotiate for a better interest rate
If you’re renewing your mortgage, ask your lender about discounted rates. You may qualify for one that’s lower than the quoted rate in your renewal letter. Tell your lender about offers you received from other financial institutions or mortgage brokers. You may need to provide proof of the offers you receive. Make sure you have this information on hand.
If you do not act to renew your mortgage, the lender may proceed with an automatic renewal. This means you will not get the best interest rate or terms. If your lender plans to proceed with an automatic renewal, it will state so in the notice of renewal.
Switching to another lender
If you decide to switch lenders for a mortgage loan of the same amount, the new lender will need to approve your application. The new lender may use different criteria than your original lender to determine if you qualify for a loan.
Costs to change lenders
Make sure you find out the costs of changing lenders, such as:
- setup fees with the new lender, which may include discharge, registration, transfer and/or assignment fees from your current lender
- an appraisal fee to confirm the value of your property (if necessary)
- other administration fees
Ask if your new mortgage lender is willing to pay for some or all your costs to switch.
Mortgage loan insurance premiums when you switch lenders
You may have to pay a new mortgage loan insurance premium when you switch lenders, if:
- the amount of your loan increases
- you extend the amortization period
If you already have mortgage loan insurance on your existing mortgage, tell your new lender. This may help you avoid paying mortgage loan insurance premiums twice. Your existing lender can provide you with a certificate number. You should ask for this when you receive your mortgage contract.
Ask the Experts
Ultimately, mortgage renewal is a mundane and routine procedure. But it’s still worth thinking ahead – and making sure you are doing all you can to find the best deal. If your bank has already denied your mortgage renewal, another lender may be able to help you out and give you that chance at a better home loan. It might be time to start looking into switching banks – but since no lender wants its customers to leave, they’re likely to try and improve your situation before moving on themselves. Don’t stop there, though. It never hurts to shop around with other lenders too; competition between banks means that quick cash can be had with the click of a button.
Reach out to schedule a free consultation today!