Why You Should Shop Around for Your Mortgage Renewal
2024-02-01 | 14:34:07
Why You Should Shop Around for Your Mortgage Renewal
If you have a mortgage in Canada, you will need to renew it at some point. In fact, 82% of all mortgages will be up for renewal in the next 36 months.
Renewing your mortgage means signing a new contract with your current or a new lender for another term, usually between one and five years. Your mortgage renewal is an excellent opportunity to review your financial goals, compare different mortgage options, and potentially save thousands of dollars in interest.
Many Canadians accept their current lender's first offer without shopping around for better rates or terms. According to the Financial Consumer Agency of Canada (FCAC), only 51% of Canadians who renewed their mortgage in 2020 negotiated their interest rate, and only 27% switched lenders. However, by doing so, they may be missing out on significant benefits, such as:
Lower interest rates: Interest rates can change significantly over the course of your mortgage term, depending on the market conditions and the Bank of Canada's policy. By shopping around, you can find out what other lenders are willing to offer you and potentially secure a lower rate than your current one. Even a small difference in the interest rate can make a big difference in the total interest you pay over the life of your mortgage. For example, if you have a $300,000 mortgage with a 5-year term and a 25-year amortization, lowering your interest rate from 3.5% to 3.0% could save you over $8,000 in interest.
More flexible features: Different lenders offer different features and options for their mortgage products, such as prepayment privileges, portability, assumability, and skip-a-payment. These features can give you more flexibility and control over your mortgage, allowing you to pay it off faster, move to a new home, or cope with unexpected financial challenges. By shopping around, you can find a mortgage that suits your needs and preferences better than your current one.
Better customer service: Your relationship with your lender is essential, especially if you have any questions or issues with your mortgage. You want a responsive, transparent, and helpful lender that provides you with the information and support you need. By shopping around, you can evaluate the customer service of different lenders and choose one that you trust and feel comfortable with.
How to Shop Around for Your Mortgage Renewal
Shopping around for your mortgage renewal may seem daunting, but it doesn't have to be. Here are some steps you can take to make the process easier and more effective:
Start early: Your current lender is required to send you a renewal statement at least 21 days before the end of your term, but you can start shopping around as early as 120 days before your maturity date. This gives you enough time to compare different offers, negotiate with your current or new lender, and switch lenders if needed. You can also lock in a rate with a new lender up to 120 days before your renewal date, which can protect you from any potential rate increases.
Assess your financial situation and goals: Before you start shopping around, you should review your financial situation and goals, and determine what you want from your mortgage. For example, you should consider how much you can afford each month, how quickly you wish to pay off your mortgage, how long you plan to stay in your home, and whether you need any extra features or options. This will help you narrow your choices and find a mortgage matching your needs.
Compare different mortgage options: Once you have a clear idea of what you want, you can start comparing other mortgage options from different lenders. You can use online tools to compare the current mortgage rates and features from various lenders in Canada. You can also contact a mortgage broker to help you find the best mortgage for your situation and negotiate on your behalf. You should compare each mortgage option's interest rate and the term, amortization, payment frequency, prepayment options, penalties, and other features.
Switch lenders if it makes sense: If you find a better offer from another lender, and the benefits outweigh the costs, you may decide to switch lenders for your mortgage renewal. Switching lenders may involve some fees, such as appraisal, legal, and discharge fees, but these may be covered by the new lender or offset by the savings from the lower interest rate. You may also need to pass a mortgage stress test if you switch lenders, which means you have to prove that you can afford the mortgage payments at a higher interest rate than the one offered. Switching lenders may take some time and paperwork, but it may be worth it in the long run.
Conclusion
Renewing your mortgage is an essential financial decision that can significantly impact your finances and lifestyle. By shopping around for your mortgage renewal, you can save money, gain flexibility, and improve customer service. Start the process early, assess your needs and goals, compare different mortgage options, negotiate with your current or new lender, and switch lenders if it makes sense.
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