Mortgage renewal tips to remember
If you are thinking about renewing your mortgage it’s important to understand that mortgage terms in Canada don’t usually last a long time. In fact, the average mortgage term lasts for about five years, but they do come in a range of different lengths. You don’t even have to renew with your previous lender. Many Canadian homeowners consider other banks, alternative lenders and financial institutions when their contract is about to end, seeing if there are better options for their finances.
As your mortgage term comes to an end and the renewal time approaches, keep a few notes in mind about how your personal and financial situation may have changed so that you can take full advantage of your renewal to best suit your future needs. A mortgage renewal is essentially an ‘extension’ of your current mortgage contract with the same lender and your mortgage balance does not change.
What is mortgage renewal?
When it’s time for you to renew your mortgage, whether your first home or additional property, you’ll be presented with a new mortgage contract. In the new contract, you may have some special offers, but there may also be changes such as interest rate differences, payment changes and other changes that may result from changes the bank/lender has instituted since you signed your previous mortgage contract. Regardless of what you’re offered, getting a renewal presents you with the opportunity to negotiate certain aspects, such as the length of your next term and your ability to pre-pay or pay down your outstanding balance.
The only time that you won’t have to renew your mortgage is when you’re about to fully pay the mortgage. If you’re in that position, you simply pay the last bit of your mortgage and let the term end. It’s very common for Canadians to take several mortgage terms before their property is paid in full.
Mortgage renewal process
About three months before your term comes to a close, your lender will likely notify you about your renewal, especially if they’re not going to automatically renew it. They’ll notify you by providing a renewal statement that holds information such as the remaining balance on your mortgage, the payment frequency, the interest rates, and other fees or charges. All the information that is on the statement is what they’re offering for the next mortgage term.
Unlike other processes involving a mortgage, renewing your mortgage is not as lengthy. Most of the time, you’ll simply have to log into your account at the bank and renew from there. It’s best to check your account a few months before the actual renewal so you have time to review your finances and decide If and what you want to negotiate.
What to remember when renewing your mortgage
It would be to your advantage to review your mortgage needs when the time comes to renew it. Take the time to look at what the best mortgage rates, payment frequencies and services are from multiple lenders for your specific financial situation as you may elect to switch lenders at the time of your renewal.
- When to renew – because mortgage terms are normally five years long, the best time to renew is at the end of that period. If you have a longer mortgage and would like to renew early, the timing and the reasons are very important because doing it too early may result in consequences or financial penalties. If you find that renewing your mortgage early will help you save money in the long run, then it’s best to take advantage.
- Frequency of payments – whether you would like to pay more frequently or at longer intervals, be sure that the payment frequency you choose stays within your financial means. You can choose from many methods to pay for your mortgage, but you are also just as welcome to keep the same approach as you did before.
- Interest rates – remember that there is always room for negotiation when it comes to interest rates. If you have been keeping up with your responsibilities and even seen positive changes in your financial situation, you may qualify for a better interest rate.
- Variable vs fixed – depending on your situation and when you think you will pay off the mortgage, you may want to consider negotiating a variable rate vs fixed rate.
- Different lenders – In some cases, Canadians will be denied a mortgage renewal at their current lender. Even though they had been approved in prior mortgages, major changes in their credit score or income can change the likelihood of getting approved for a mortgage renewal. If you switch lenders, you may find an agreement that is better suited for you. Alternative lenders are a great solution because many of them do not factor in one’s credit history when giving out loans.
Do mortgage payments go down when you renew?
In a way, how much you pay towards your mortgage can change, depending on what your lender offers you or what you negotiate. If you’ve been keeping up with all mortgage payments in a timely manner, you may be offered a lower interest rate. If the current interest rate offered for the renewal is lower than what you paid during the previous contract, you may have a lower payment. The opposite is true if interest rates increase. Otherwise, your payment is not likely to undergo any changes, especially if your amortization stays the same.
After you renew a mortgage
As you continue to make regular payments to your property, you build equity in it. Equity is the difference between your outstanding mortgage balance and the house’s market value. The more of your mortgage that you have paid, the higher that difference is. Homeowners can access this as a loan to renovate their home, start a business, or acquire additional property.
When you have built up significant equity, alternative lenders like Alpine Credits can help you access it in the form of a loan. Your income, credit history, or credit score do not affect your chances of getting approved for a home equity loan. Contact one of our Financial Solutions Specialists to explore your opportunities with home equity.