A mortgage renewal is an extension or renewal of your mortgage terms with your mortgage holder. Most mortgages break payments into monthly amounts. When determining the payment amount, your lender figures you will pay your mortgage off over 30 years if you make your payments consistently on time.
Even though mortgage payments are broken up over 30 years (referred to as the amortization period) in Canada, a mortgage-term is a much smaller amount of time. If you have never fallen behind on your mortgage payments and you plan on staying with your original lender, the process can be as straightforward as renewing your car insurance.
The mortgage company will send you renewal papers at the proper time, you’ll sign and return them, and the new mortgage will take effect based on the amount you still owe at the time of your mortgage renewal. While this is a relatively painless process, there are some factors you should consider before automatically agreeing to a mortgage renewal with the same company.
When your mortgage term is coming to a close, it’s an excellent time to take a look at your financial goals and needs and see if the old terms still align with them. If not, this is the time to consider renegotiating the terms of your mortgage or switching lenders for a better rate.
Personal Factors to Consider for Mortgage Renewal
When you are getting ready to begin the mortgage renewal process, consider what is going on in your life right now. Also, consider what you’ll need to plan for over the next few years. Here are some personal factors you should consider when you are getting ready to renew your mortgage.
- Have you or your partner increased your income so that you could pay off your mortgage sooner?
- Have you experienced income loss?
- Will you be acquiring new expenses soon (the birth of a child, tuition payments, etc.)?
- Is there a chance you will be moving during the next mortgage period?
- Do you think you will be receiving an inheritance or some extra income in the next few years?
Other Factors to Consider for Mortgage Renewal
When looking at mortgage renewal options, there are additional factors to take into account, as well. Here are other factors to keep in mind:
- Are current interest rates higher or lower than the rate of your old mortgage?
- Are interest rates predicted to shift in the coming years?
- Are you happy with your mortgage holder?
- If you’re not content with your current mortgage holder, what are the costs and fees associated with switching mortgage lenders?
Pros and Cons of Switching Mortgage Lenders
Typically, people will switch mortgage lenders to save money in the long-term, but there are some considerations to think about before switching lenders.
- More flexible terms
- Better interest rates
- Possibility of different criteria to decide if you qualify for a mortgage
- Additional Fees, including set up fees, transfer or assignment fees, appraisal fees, administrative fees.
- Possibility of a new mortgage loan insurance premium (if your mortgage was previously insured)
- Lawyer or Notary fees (Quebec and British Columbia) when signing registration documents that are part of your mortgage contract.
Renegotiating a Mortgage with Your Current Lender
Even if you’re not planning on switching your current lender, doing research (or having your broker do it for you) can be beneficial. Looking into what other lenders are offering for mortgage rates, prepayment options, and other terms and conditions can help get you a better deal.