When the contract expires on your mortgage, you’ll have an opportunity to renew the mortgage for another term. The mortgage renewal process can be as simple as re-upping with your current lender at a rate and term that you agree upon. It could also be an ideal time to make changes to your mortgage, like a refinance, or switching from a fixed mortgage to a Home Equity Line Of Credit, or vice versa. You may even decide to move your mortgage to another lender if you’re unable to secure a competitive interest rate.
Your Mortgage Renewal: Things To Consider
Before you renew your mortgage, take time to consider your future plans to ensure that your mortgage meets your needs both today and down the road. After all, there’s more to a mortgage than just getting the best interest rate. Here is a list of questions you should ask yourself before you meet with your mortgage lender.
- How long do you plan to live in your home?
- Are there any major purchases on the horizon, such as a home reno or a new vehicle?
- When do you hope to pay off your mortgage? Could you benefit from having more prepayment flexibility?
- Is your mortgage protected with life or critical illness insurance? If not, is it something you’d like to add?
- How has your experience been with your current lender?
- What interest rate are you able to secure elsewhere? Is your current lender able to match?
Answering these questions will better prepare you to make the right decisions when it comes time to renew. Now, let’s take a closer look at the mortgage renewal process itself.
Understanding The Mortgage Renewal Process
As your mortgage nears maturity, your lender will notify you in writing of your mortgage renewal options. If you deal with a bank that’s federally regulated, they must notify you at least 21 days prior to the end of the current mortgage term. Most financial institutions will reach out much earlier than this – giving you the option of renewing up to 120 days early without penalty.
When you receive notice of your mortgage renewal in writing, you’ll be presented with a series of current rates with an option to circle the term and rate of your choice and return the document to the lender for processing. Don’t just accept the rate presented to you, but rather call to arrange for a meeting with a mortgage broker. This will allow you to discuss your options in more detail, which includes securing the lowest possible rate.
Don’t Be Late To Renew Your Mortgage
It’s very important not to delay your mortgage renewal. If you don’t sign a new agreement prior to the maturity date, your financial institution may decide to auto-renew your mortgage into an open term, resulting in a much higher interest rate being charged. Although you can get out of an open mortgage at any time, you’ll have to wait at least 30 days for your new rate to take effect at the beginning of the following month. Depending on the size of your mortgage, this could mean paying hundreds of dollars in additional interest.
Early Mortgage Renewal
An early mortgage renewal refers to the renewing of a mortgage prior to the end of its current term, or what’s referred to as the renewal cycle, which often begins 30 days prior to maturity. Most mortgage lenders will allow you to renew your mortgage without a penalty as many as 120 days prior to maturity. If the new mortgage rates are lower than what you currently have, renewing early can be an attractive option, as it allows you to lock in early at a better rate. If new rates are higher than what you’re paying, you’re better off waiting to renew – unless you feel that rates may be on the rise in the near future.
Can You Be Denied A Mortgage Renewal?
If you haven’t made payments as agreed over the term of your mortgage, your mortgage lender can decide not to renew your mortgage at maturity. Even if you’ve made your mortgage payments on time, your lender will review your credit report prior to renewal. If they see other credit activity that places you at a high risk of defaulting on your mortgage, they may still decide not to renew. This is yet another reason why it’s so important to stay on top of your mortgage payments and maintain a clean credit report.
Switching Mortgage Lenders
When your mortgage is up for renewal, you have the option of switching to another mortgage lender. There may be a number of reasons to want to do this, but most often, the choice comes down to rate. That means another lender is willing to give you a lower rate than your current mortgage provider can offer. While getting the best possible rate on your mortgage is important, you do need to consider the other costs involved to move your mortgage. If the new rate being offered is close to what you can get at your existing lender, moving the mortgage might not make sense. Let’s take a look at some of the potential costs of moving your mortgage.
The Cost Of Changing Lenders
If you decide to move your mortgage to a new lender, there will be costs involved. For starters, your existing lender will charge you a discharge fee of approximately $300. There are also costs involved to set up the mortgage with your new lender unless you’ve managed to negotiate a waiver of fees upfront. Setup costs can include an appraisal fee of up to $500, an assignment fee ($300) and legal fees – which can range anywhere between $800 – $1,000.
Before changing lenders, make sure the numbers work from a dollars and cents standpoint. For example, it wouldn’t make sense to save a couple of hundred dollars of interest if it costs you $1,000 in setup fees to move from one lender to another.
Be Prepared For Your Mortgage Renewal
When it’s time to renew your mortgage, the best thing you can do is be prepared. Start early and take time to figure out your future plans. Ask yourself how you can best align your mortgage to meet your goals. When you decide that you’re ready to renew, you can use a broker to shop around and find the best rate. If you find a lower rate, make sure that going through the process makes sense for your future home goals before taking action.
If it’s time for a mortgage renewal, Edison Financial is here to help.
Tom Drake is an authority in Canadian personal finance. He is a financial analyst and has been writing about personal finance since 2009 at the award-winning MapleMoney. His work has appeared in MintLife, Canadian MoneySaver, and U.S. News & World Report, and has been quoted in The Globe and Mail, Yahoo Finance, and Financial Post.