5 misconceptions when it comes to mortgage renewals
So, you’ve been getting emails and phone calls from your lender about your mortgage renewal.
But wait, according to your calendar, renewal time is still 4 months away. That’s pretty much an entire school term from now. It’s definitely far too soon to think about such things.
Or is it?
Misconception #1: it’s better to wait until the last minute to renew your mortgage.
On the contrary, starting the renewal process early gives you the much-needed time to reevaluate your existing mortgage term.
For example, perhaps you’ve moved up the pay grid and now have more money coming in.
If that’s the case, you may want to consider switching to accelerated payments (i.e. weekly or bi-weekly) or reducing your amortization to pay your mortgage off faster.
On the flip side, maybe your spouse/partner was recently laid off from their job. In which case, refinancing might be an option worth looking into (so you can extend your amortization, which would lessen your monthly mortgage payments and free up more cash flow).
With most lenders allowing renewals up to 120 days before a mortgage term matures, it’s best not to wait until the last minute. The sooner you start the (renewal) process, the more time you’ll have to research and consider all of your options in order to choose a term that’s right for you.
Misconception #2: securing an interest rate ahead of mortgage renewal locks you into that rate.
Not at all—but what it does is protect you by holding that rate in the event interest goes up. However, should interest rates fall from the time you secure that rate to when the renewal kicks in, any (rate) float downs will be applied up until 5 days before the closing date.
Misconception #3: all lenders offer the same rates, so there’s no point in shopping around.
While the first part of that statement might technically be correct, that doesn’t mean you won’t be able to find a lower rate somewhere else.
For example, mortgage brokers tend to offer more competitive rates over the big banks.
That’s because the mark up on interest rates is typically higher at the banks.
Mortgage brokers, on the other hand, operate independently. This puts them in more of a neutral position, giving them access to multiple lenders—which means they can genuinely seek out the best rate possible.
If you’re still tempted to stick with your current lender because they’re making it sound so easy to renew (i.e. “just sign on the dotted line and you’re done”), don’t let that stop you from taking the time to compare rates elsewhere. The data out there suggests that banks typically offer existing mortgage renewal clients interest rates that are higher than the rates quoted to new customers.
All that to say that the ‘mortgage grass’ could very well be greener on the other side, so be sure to do your research.
Misconception #4: you’ll pay high fees to switch to a new lender.
This line is something an existing lender may use as a tactic to keep their clients from jumping ship.
However, as long as you’re leaving at the end of your mortgage term, there are generally no major costs associated for simply walking away—only a discharge fee (which tends to be paid by the new lender as an incentive for securing your business).
Keep in mind that while you can change your interest rate, payment frequency, and prepayment options when switching lenders, you cannot change your mortgage amount or amortization period. In order to change those variables, you’ll need to refinance your entire mortgage loan. This is something that can still be done when switching lenders, but refinancing requires an entirely different application process. So, be sure to consult with a mortgage professional to determine your best course of action before making any decisions.
Misconception #5: when renewing from a fixed rate to a variable mortgage, it’s best to hold off—just in case the Prime Lending Rate (PLR) is reduced any further.
There’s actually no need to wait.
That’s because lower rates caused by any decreases in the PLR due to further reductions in the Bank of Canada (BoC) overnight rate are instantly applied (not only until your mortgage maturity date, but during the entirety of the new mortgage term).
With that said, you’ll want to consider locking in a variable term sooner rather than later in order to secure the best margin off the PLR (as those margins offered by lenders may shrink as rates go down).
A few additional mortgage renewal tips to keep in mind:
- If rates are on the downswing and yet you still prefer the peace of mind of locking in with a fixed mortgage (over a variable), consider renewing for a shorter term (i.e. 1 or 2-year vs. 5-year)
- Take advantage of any prepayment privileges by making a lump sum payment (if possible) to reduce your overall mortgage amount before your renewal date
- Never accept your lender’s first offer—there is always room to negotiate
- If you’re struggling to pay your mortgage due to exceptional circumstances, the Federal Consumer Agency of Canada (FCAC) requires federally-regulated financial institutions to ensure the terms of a mortgage renewal are appropriate by considering your financial situation and needs (this also involves not offering you a less advantageous interest rate if you’re unable to adjust your current mortgage agreement or do not qualify with other lenders)
- Before signing your mortgage renewal contract, be sure to carefully read the terms and conditions (i.e. ‘the fine print’) and ask questions if you have concerns or are uncertain about the wording
Have a mortgage renewal coming up? Consider making the switch to Educators Financial Group.
As a mortgage broker that serves members of the education community, we can leverage multiple lenders across the province to find you the lowest rate possible. Plus, we’re all about going beyond the rate in order to provide you with the right mortgage based on your specific needs and goals.
