What is a Mortgage Renewal?
When you receive a mortgage, your payments may be based on a 20 year amortization period, but the term is at most only five years. This means that at the end of those five years if you can’t pay the balance owing on your loan, you’ll need to extend your agreement by renewing the terms with your existing lender. As your current term comes closer to expiring, you’ll receive a renewal notice in the mail that you can sign and send back. While it would be easy to simply sign and renew your existing mortgage, it isn’t always the best idea.
Mortgage Renewal Process
What happens when you renew your mortgage? Even though your existing lender will notify you before your mortgage maturity date, you should begin preparing for the mortgage’s expiry about four months early. That way you can make an informed decision, without feeling pressured to make a hasty decision.
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Mortgage Renewal Process Step 1: Review Your Options
About four months before your mortgage is set to expire, you should start seeing what else is available in the marketplace. Renewing your mortgage is essentially signing a new mortgage contract, and you wouldn’t just sign any mortgage contract without reviewing your options would you? If you’re aware of what other lenders are currently offering in regards to rates, terms, and payment options, you’ll be better equipped to negotiate with your existing lender if you decide to renew with them.
Mortgage Renewal Process Step 2: Reassess Your Finances
If it has been five years since you signed your mortgage contract, your financial situation could have changed a lot. You may have received a large raise at work, changed careers, had a baby, or taken on other new expenses. Before you renew your mortgage be sure to consider where you are currently at financially, and where you anticipate being within the next five years. It is also very important to consider whether or not you might move in the next five years, as prepayments often come with hefty penalties.
Mortgage Renewal Process Step 3: Consider What You Want
In addition to assessing your financial situation, you’ll need to think about what it is you want in a mortgage – as they are not all created equal. Some things to ask your self are Will I want to be able to put lump sum payments towards the mortgage? Will I want to borrow money from my lender? Is there a chance I might move in the next five years? Having the answers to these questions will make it clear if renewing your existing mortgage is a wise decision. If you decide not to renew with your existing lender, this information is useful for finding the best mortgage product for your needs.
Mortgage Renewal Process Step 4: Time to Decide
Now that you have reviewed what is available in the marketplace, evaluated your financial situation and mortgage needs, it is time to decide what to do. If you feel like your current mortgage product checks all of your boxes, then it makes the most sense to renew with them. If your existing mortgage product leaves something to be desired, then you are probably better off moving to a new lender.
If you decide to move to a new lender, keep in mind that you’ll need to go through the mortgage application process again. While this does require more upfront work than renewing an existing mortgage, you have the potential to save a lot of money, and get a much better mortgage product.
The Mortgage Renewal Process is Easier with a Broker
While brokers are commonly used to get an initial mortgage, they are also extremely helpful when it comes to renewals. You’re busy, so shopping around for different mortgage products and seeing what rates and terms are available in the marketplace probably does not make the top of your priority list. In that case, just have a mortgage broker do it for you.
If you reach out to your mortgage broker a few months before your mortgage is set to expire, they can take note of your situation, and do all the research on your behalf and advise on what your best option is. After reviewing all the mortgage products in their network, your mortgage broker can either connect you with a new lender that has a more suitable mortgage product, or advise that you stay with your current lender and renew your existing mortgage. Not only will a mortgage broker save you time and money, their services are free!
Should You Renew Your Mortgage Early?
Generally, within four months of your mortgage term expiring, your existing lender will reach out to you with an early renewal offer. This offer typically contains the same things as your current mortgage, sometimes with a slightly lower interest rate. Being presented with a lower interest rate than you currently pay can be enticing, but be aware that you can likely get a lower rate by shopping around.
On the other hand, sometimes renewing your mortgage early can be helpful. Some mortgages allow interest rates to be locked in. So if interest rates are starting to rise, it may make sense to renew early, locking in that lower interest rate before your term comes to an end.
Sometimes Renewing Your Mortgage isn’t the Best Idea
Stats show that most homeowners renew their mortgage with their existing lender – but not because they’re getting a good deal! One consumer survey found that most of these homeowners did not even negotiate any parts of the mortgage, they simply signed the renewal notice. Because lenders know you won’t want to go through the hassle of switching lenders, they don’t even bother offering you a competitive product, as they are betting on the fact that you will just sign and return.
By not shopping around you are likely paying thousands of extra dollars that you could be saving if you switched lenders. If shopping around isn’t something you’re interested in doing, you can have a mortgage broker do it for you. A mortgage broker has connections at many different banks and lenders; they can compare all the products available, and present you with the best possible option. Plus, their services are free!
Possible Mortgage Renewal Issues in Canada
When your mortgage term is nearing its end, one of the last things you are probably thinking of is the possibility of your renewal being denied. While it is possible, as long as you’ve made all of your payments on time, this is an unlikely concern.
One benefit of staying with your existing lender is that you don’t need to be re qualified for the mortgage. So if since signing your original mortgage you lost your job or have a worse credit score, it is usually recommended that you stay with your existing lender when you receive your renewal notice. It is important to note however, that your lender will review your financial situation before sending a renewal notice. If they feel like you now have more debt than you can afford, they may choose not to renew.
If you decide to apply for a mortgage renewal with a new lender, keep in mind that you will need to go through the mortgage application and qualification process again. This means that if since the time of your original mortgage you have become a less desirable borrower (spotty job history, missed mortgage payments) your application could be denied.
If both your current lender and a new lender deny your mortgage renewal, you’ll be forced to apply for a mortgage with a “B” lender. This is an undesirable scenario as these types of lenders come with higher rates than you’ve been used to paying. The best way to ensure that your mortgage renewal will not be denied is to make all your payments on time, and maintain an acceptable credit score.
6 Mortgage Renewal Tips
- 1. Start EarlyFour months before your term expires is a good time to start shopping around and seeing what else is available.
- 2. Work with a Mortgage BrokerA Mortgage Broker knows which lenders are offering the best mortgage renewal rates and have the best mortgage products. You’ll save tons of time having them do all the legwork for you when it comes time to shopping around. Plus, their services are free.
- 3. Remember to NegotiateIf you decide to stay with your current lender, don’t just sign the renewal slip. Negotiate the rate or conditions to better suit you.
- 4. Be Open to Changing LendersYes, it requires some upfront paperwork, but in the long run you could be saving thousands of dollars.
- 6. Consider Your Near-Future PlansThink about whether you’ll be making any major changes like retiring or moving within the time of your term. These decisions should influence your choice in mortgages.