When buying a house, you usually sign a mortgage with a 15 to 35-year amortization. But throughout that time, the lender can break your mortgage into terms that last anywhere from 6 to 120 months. The mortgage is broken up into 24- to 60-month terms in most cases.
So, when you renew your mortgage, it usually means that you are signing a new agreement with the lender for a term equal to all or part of what is left on your previous agreement. The renewal cost will depend on current lending rates at the time.
The Mortgage Renewal Strategy in Canada
There are two things that any serious homeowner should do before the end of their mortgage term:
- shop around for a new lender or
- have a renewal strategy.
While you might think that renewing your mortgage automatically means going with the same lender, there are some great reasons to take advantage of other lending options open to you.
Mortgage Renewal in Canada: Step By Step
Remember, if you don’t shop around for the best mortgage renewal rates available to you, you’re leaving money on the table. So here’s what to do:
Step 1. Start Preparing on Time
Think about how much you can realistically afford and decide on a budget. Remember that your lender will most likely require you to qualify for the new mortgage at a higher interest rate than what you paid on your last term.
Gather all of your financial documents, including the latest payslip, bank account statements, a notice of assessment from the Canada Revenue Agency, etc. Make sure to provide your financial institution with a copy of this information if they request it. You may also be asked to provide proof of employment or other income sources.
Contact a lender and tell them you’d like to get pre-approved for a mortgage renewal. They’ll give you a rate and a pre-approval code that you can pass on to the seller of your house. The seller may then write into the offer that they will accept your renewal application, provided you meet all other conditions for buying a property (price, financing).
Step 2. Choose to Renew or Break Your Mortgage Term Early
When you get a mortgage renewal letter from your bank, it will show your current interest rate next to the new rate you will have if you renew. It’s very tempting to say “OK” and avoid all the confusing fine print. But by doing so, you’re only agreeing to sign another mortgage term with your current lender – which means locking yourself into paying that new rate for the next 20-25 years! That is unless you choose to break your mortgage or renew it early.
The pre-authorized cancellation form is the only way to terminate your mortgage without penalty. It lets your lender know that you’re ready to end your current agreement. The benefit of using this method is that you will be able to shop around for the best new rates and terms from other lenders when you do break it.
Step 3. Know You Renewal Options
Before you renew your mortgage, you need to know what kind of mortgage product would suit you best. Knowing the options might help you become mortgage-free sooner than you thought. Here are some of the essential options and terms you should know:
- Fixed-Rate Mortgage: Your interest rate stays the same during the loan term. You will need to refinance at the end of the term unless you want to renew your fixed-rate mortgage.
- Variable-Rate Mortgage: A floating-rate mortgage is also tied to prime lending rates and can change anytime. If interest rates go down, your payments may decline accordingly.
- Principal and Interest Payment Mortgages: This kind of mortgage has you paying off your principal (the actual loan amount) and financing charges each month for the term.
- Interest Only Mortgage: You only pay off just finance charges by making monthly payments that don’t cover any part of your principal balance or total interest due during the term.
- Line-of-Credit Mortgages: A particular type of variable rate mortgage attached to a separate line of credit. It’s great for those who need the flexibility to borrow from their own home during the mortgage term without being charged extra fees or penalties. The interest you pay on this loan changes along with prime lending rates.
Step 5. Remember: It’s OK to Walk Away From Your Mortgage Term
If you’re not happy with any offers from your current lender or another one, don’t just sign anything right away. Instead, consider whether or not renewing is even in your best interests at all. Think carefully about how long you plan on staying in the home before you sign on again – and whether or not finding a better rate than what is being offered might make more financial sense in the long run.
If you do decide not to renew your mortgage, make sure to get out of it properly by either filling out a pre-authorized cancellation form or breaking your term early with no penalty before its time is up. If you don’t, then you could find yourself stuck paying an interest rate that’s higher than what other lenders are offering elsewhere. Also, remember that while mortgages may come with terms designed to protect lenders from customers defaulting on their loans, they’re also meant to help homeowners achieve their financial goals.
The Bottom Line
Your mortgage renewal date is an important day – and it’s your chance to switch your existing loan to a new plan that better suits you. In most cases, the first thing you need to do before even thinking about renewing is to make sure that you’re as satisfied as possible with the product and service being offered by your current lender.
If no other bank can offer a better deal, then don’t be afraid of sticking with what you have if it means keeping monthly payments manageable for both yourself and your family. But whatever you do, make sure not to ignore this crucial step in the mortgage process! It can help ensure that getting rid of your home won’t become more costly than it needs to be later on down the road – especially since most Canadians don’t know when they’ll finally be done with their mortgage.
Hope now you know the process of Mortgage Renewal in Canada. For more information on Mortgage, Refinance, Rates, Home equity visit our website Best Mortgage Online
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