Renewal Time – Maturing Mortgages
So 5 short years have passed and your mortgage is coming up for renewal. You’re excited since you have been paying 3.49% for the last 5 years and you’re seeing mid two’s advertised everywhere, so you figure you’ll be able to save some money going forward (which is true). You start getting letters and phone calls from your existing mortgage lender a few months before expiry and you aren’t sure what to do; Sign the renewal paper and make your payments for another 5 years, or maybe explore your options with your broker. If you are in or will soon be in this dilemma, we’re here to make sense of it all for you. We are going to break down the process and hopefully put you on the right track to ensure you get the best deal available.
Renewing with your existing lender;
While this may seem like the quicker and easier options, there are a few things you need to consider before signing the papers and locking in. The first and most obvious thing you should look at is the rate. In a lot of cases, if your rate is higher than what is currently being offered the lender will first offer you a rate that is slightly above what is available on the open market. The reason for this is because the convenience of simply signing the renewal form and renewing the mortgage vs going through the process again is sometimes enough for clients to just pay the higher rates. Lenders will try to get more interest before negotiating. By speaking to your broker, even if it is just to discuss renewing with your lender, you ensure you are not being taken advantage of. A respectable broker will always advise the client to do what is best for the client’s financial wellbeing. If they are able to speak to the lender and get the rate lowered for you even if you are simply renewing, this could save you lots of money on interest. It is always worth asking.
Next is the deal itself; what is available to you have within the mortgage as far as pre-payment privileges, convenience, flexibility and customer service. Sometimes clients will be so excited about saving 5 basis points on their rate that they don’t realize their lender does not allow any pre-payment. So when they need to re-finance before their mortgage expires or what to pay down their mortgage, the penalty is through the roof. This is another advantage of speaking to your broker, they will make sure you are educated on the product you are signing up for and talk to you about what options you need with your mortgage. If you are planning to renovate or sell your home in 3 years, you need to address this at inception so you have the flexibility to do so without a huge penalty.
Lastly, while you have the opportunity to change up your mortgage as it is expiring. Now is the time to consider if you would benefit from using some of your equity and re-financing your mortgage. If you have some debts you are considering paying out, renovations coming up in the next couple years, a child going to school soon, now is the time to deal with this. At maturity, there is no penalty at all to pay out your mortgage with a new one. If you simply renew and neglect these items, then in two years you need to re-finance to take care of these, it could end up costing you thousands in pre-payment penalties. Even if there is a possibility of any of the above coming up in the coming years, you could set up a Home Equity Line with your new mortgage. This way it is there if you need it and you don’t have to withdraw any money or pay any interest.
The most important thing to take from all of this is to make certain you consider all of your options before just blindly renewing. We have seen too many clients just renew with their lender, only to call us a short time after upset about their rate or needing to break the mortgage. If renewing ends up being the best option for you at the time and the most cost efficient, a good Mortgage Broker will tell you that and even help you through the process without any compensation. If you have a mortgage renewing in the next 6 months, give us a call so we can go over all your options with you.
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Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.
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