Ultimate Guide to Mortgage Renewals in Canada: Tips and Strategies
If you’re a Canadian homeowner approaching the end of your mortgage term, you’re probably gearing up for a mortgage renewal. Understanding this process can significantly impact your financial future. In this comprehensive guide, I’ll delve into mortgage renewals in Canada, covering essential tips and strategies to help you make the best decisions for your situation. Whether you’re a first-time homebuyer or a seasoned homeowner, this post will provide valuable insights into optimizing your mortgage renewal process.
What is a Mortgage Renewal?
A mortgage renewal is the process of extending the term of your existing mortgage once the initial term has expired. In Canada, this typically occurs every 1 to 5 years, depending on the length of your original mortgage term. During this renewal period, you have the opportunity to negotiate new terms with your lender or switch to a new lender altogether.
Key Steps in the Mortgage Renewal Process
1. Review Your Current Mortgage
Before you start the renewal process, take a close look at your existing mortgage terms. Understand your current interest rate, remaining balance, and the time left on your mortgage term. This information will serve as a foundation for negotiating new terms. Its best to begin at your mortgage 120 days in advance of your renewal.
2. Call your mortgage broker to check current interest rates and to run scenarios to ensure you can afford the new proposed payment
Interest rates can vary significantly between lenders. Mortgage brokers have many different lenders rates at their finger tips, ensuring you get the best deal. This is also a good time to run different rate and payment scenarios if you’re feeling a payment crunch, or if you want to pay off your mortgage faster.
3. Evaluate Your Financial Situation with your mortgage broker
Your mortgage broker will ask you to consider your current financial situation and future goals. Are you planning to stay in your home long-term? Do you anticipate significant changes in your income or expenses? These factors will influence whether you should opt for a fixed-rate or variable-rate mortgage and whether a shorter term such as a 2 or 3 year term is more favourable than what most people choose – the 5 year mortgage.
4. Check with your mortgage broker on your mortgage terms and ensure they are as flexible as possible
Understanding the terms of your mortgage and opting for a flexible mortgage is important to your financial health. Knowing whether you have prepayment privileges of 10%, 15% or 20% or none at all is critical. With a closed mortgage, a prepayment penalty is triggered if you exceed the prepayment privileges of your mortgage whether by a small amount or by paying the entire loan off early. It’s important to know what steps you can take to shorten your mortgage amortization and pay less interest over the life of the mortgage if at all possible.
Portability is another benefit of more flexible mortgages. Being able to port your mortgage to another property can avoid a high-cost prepayment penalty which can eat up the equity you have built up in your home.
Having a flexible mortgage is important for most people, as this can give you the piece of mind that should Life happen, your mortgage can happen with you.
5. Finalize the Renewal
Once you’ve chosen the best mortgage renewal terms for your situation, finalize the agreement with your lender. Review all documents carefully before signing to ensure that all terms and conditions are accurately reflected.
Common Mistakes to Avoid
• Not using a mortgage broker or doing the legwork yourself: Failing to secure a mortgage broker to compare offers from multiple lenders can cost you more in the long run.
• Not Understanding Terms: Ensure you fully understand all terms and conditions before committing to a new mortgage agreement.
Wrapping it up
Mortgage renewal in Canada is more than just a formality—it’s a crucial opportunity to reassess your mortgage terms and potentially save money. By carefully reviewing your current mortgage with your mortgage broker, you can make informed decisions that benefit your financial future. Stay proactive and take advantage of this important financial opportunity to secure the best possible mortgage renewal terms.
For personalized advice and assistance, consider calling or emailing me today. I can help you navigate the renewal process and find the best options tailored to your needs. Happy renewing!
Bonnie Casault
Mortgage Broker
780-716-4819
bonniec(at)dominionlending.ca