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10 Things to Consider Before Renewing Your Mortgage

10 THINGS TO CONSIDER BEFORE RENEWING YOUR MORTGAGE

 

Your mortgage term is nearing its end, and you’ve been notified of the possibility of renewal. Before jumping in to sign the renewal right away, there are a few things to know before you continue with the Mortgage Renewal process. Although things may seem much quicker and easy by just staying with the current mortgage lender, do some research and get some qualified advice so you put yourself in the best situation to get the best mortgage renewal options possible.

What is Mortgage Renewal?

When you have a mortgage, you have a contract with a mortgage lender. This contract is set for a certain length of time. The length of time specified in the contract is called the term. The term can last anywhere from a few months to more than five years. When you get to the end of each mortgage term, you have the choice to renew for another term or pay off your mortgage.

Mortgage renewal will include the following:

  • The length of the term
  • Do you need a refinanced mortgage loan to pay off other high-interest loans or consolidate debts?
  • any charges 
  • frequency of payments
  • any remaining principal or balance at the time of renewal
  • it must specify interest rates won’t increase until your actual date of renewal.

Ten Things You Need To Know Before Renewing Your Mortgage

  • Know what you can afford for mortgage payments. Take a look at your life situation. If your income has increased or you have lost your job, this will affect what amount of payment you can afford. When you know what you can afford, you will be able to find a mortgage renewal that fits your situation.
  • Know the difference between Amortization and Mortgage Term. This will help you understand the terms used in mortgage renewal. Amortization is the length of time it will take you to pay off your mortgage. This could be anywhere between fifteen to thirty years. A Mortgage Term is the amount of time you specify in your mortgage agreement. The usual length of time for a term is about five years. The end of the term is called the Maturity Date.
  • You have options at the end of your mortgage term. You have the option of paying off the balance of your mortgage, or you can renew for another term. There are factors to consider before picking the length of term and type of mortgage that suits you.
    1. What amount can you afford?
    2. Know how interest rates work
    3. Shop for mortgage lenders that suit you
    4. Decide on the length of the mortgage loan
    5. Do you have savings for upfront costs
  • Know the difference between closed and open mortgage terms, and know the one you want. Open Terms allow additional payments of any amount to be made. They are flexible and also allow the mortgage to be paid off in full. Open mortgage terms often have higher interest rates. Closed mortgage terms have lower interest rates, but have less flexibility and fewer options.
  • Decide on the length of the Term you want. By taking your personal situation into account and discussing it with a mortgage broker you trust, you will be able to decide what terms suit you best. You will also have to consider if you want to pay off your mortgage earlier than expected, interest rates and their forecasts and if there are any life changes going on.
  • Know if you want a fixed rate or a variable rate. Fixed rates are when the interest rate and payments are set or fixed. This means the rates will stay the same until the term ends. Fixed rates are good when you are trying to budget and provide the security of knowing what you regularly have to pay. Variable rates change with the prime lending rates. If the rates go down, though, you could pay off your mortgage quickly. They are obviously a bit more risky than fixed rates because you could pay more interest if the prime rates are increased.
  • You don’t have to re-apply or re-qualify for mortgage renewal. Have your mortgage broker look over your financial situation and offer options that will benefit you.
  • You can lock in a mortgage term earlier than the maturity date. You are able to decide on new mortgage terms around 120 days before your current mortgage term ends. You should be thinking about mortgage and term options any time around 150 days before the end of your mortgage term.
  • You should know if you are selling, or going to sell, your home during the coming mortgage term. This situation doesn’t have to hurt your renewal. You may even feel encouraged to sell your house. Often, if your new house qualifies, you can transfer your mortgage over to the new house if you wish to carry the mortgage. Mortgages can be arranged to be very flexible and can be blended, extended, or be portable mortgages.
  • If you are receiving an inheritance or a large amount of money, during the time of your mortgage renewal, you may want to get an open term mortgage. This is something you should discuss with your mortgage broker.

Mortgage Renewal Tips

Here are a few tips to consider when you are preparing to do a mortgage renewal.

  • Consider goals: think about your financial goals and make sure your lender can give you a product that works for you.
  • Shop around: you can shop around as early as 120 days before the end of your term, or maturity date.
  • Find a better rate: don’t be afraid of negotiating. Take the time to try to find a better rate. Often, the rate offered on the renewal strip isn’t the lowest possible rate, so ask about it. 
  • Rate holds: Rate holds are when you lock in a rate while shopping for better rates. You can ask your mortgage lender to hold that rate while you see if your own lender can match the rate. You are protected from interest rates for up to 120 days. You can still negotiate if rates go down.
  • Find another lender if necessary: If you decide to change lenders, it is better to do so as soon as you can. Since you will have to submit a mortgage application to the new lender, it will take a while to work everything out. You don’t want to leave things too close to the maturity date. If you do leave things too late, you will have to stay with your current lender for the next term.

If you do choose to change lenders, remember to have the following on hand for the new lender:

  • Proof of homeownership
  • Property insurance proof
  • Proof of income
  • A copy of the mortgage renewal letter you were given

You will also need to fill out the application.

You shouldn’t have to struggle or be confused during the whole mortgage renewal process. Renewing a mortgage shouldn't be stressful at all. Make sure you have a mortgage broker you can trust, and always ask questions if you need to. Mortgage renewal should be an exciting time, getting better rates to improve your financial situation and achieve your financial goals. Contact your mortgage broker today to discuss if mortgage renewal is for you. We are here to help.

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