During the pandemic-era housing boom, many homebuyers purchased residential properties at rock-bottom mortgage rates. In response to the national economy’s pressures, the Bank of Canada (BoC) slashed interest rates to near zero, allowing prospective homeowners to obtain greater purchasing power and acquire a detached house, townhome, or condominium suite that might have exceeded their initial budgetary limits.
Now that rates are at their highest levels in 16 years and the average five-year fixed mortgage rate is close to six per cent when these homeowners renew their mortgages, they will need to be prepared for higher monthly payments. It might be a few hundred dollars, or it might be a few thousand. This all depends on the size of the mortgage and the rate.
Before diving into the steps of renewing the mortgage, it is essential to become acquainted with the basics of mortgage renewals.
Mortgage Renewal: A Primer
So, what do you need to know about a mortgage renewal?
The term of their mortgage expires between one and five years, and you need to renew your mortgage to continue borrowing from the lender. When a mortgage term ends, you can modify the terms of the original mortgage, including changing the length of the term, from a three-year term to a six-year term, for example. Or you may adjust the amortization period or payment frequency.
What You Need to Know About Requalifying
Now, what about requalifying for a mortgage?
Borrowers need to requalify if they switch mortgage lenders. At the same time, considering how high interest rates are today, this would be pretty challenging to requalify for some. The process can be a lot easier if borrowers renew with the current mortgage lender and refrain from negotiating better terms and conditions. However, once mortgage holders attempt to shop around for a different lender, they must requalify. This could leave them in a difficult situation: it would be tougher to renew, and subsequently, homeowners might be left without a lender, forcing them to sell their home. Of course, the other option is to meet with a private lender and pay significantly higher interest rates.
Steps to Mortgage Renewal
Mortgage renewal is a crucial decision that should be carefully considered. You must view current market conditions, evaluate your financial goals, and consult with mortgage professionals to ensure the renewed mortgage aligns with your goals. In addition, the process will involve renegotiating the terms and conditions of an existing mortgage loan, which affirms that a decision must be well-planned.
Here are six steps to follow when renewing a mortgage:
#1 Start the Process Before the Current Mortgage Expires
Beginning the renewal process a few months before your current mortgage term expires is vital. This will give you time to study the market, compare offers from different lenders, and negotiate the best terms. The renewal process can be initiated through your lender or mortgage broker.
#2 Clearly Understand the Terms of Your Current Mortgage
Read the fine print before you start the renewal process. Carefully assess the current mortgage agreement, including the interest rate, remaining balance, repayment terms, and any applicable fees or penalties you may have to pay if you terminate the mortgage early. This step lets you identify the changes or improvements you want in the renewed mortgage.
#3 Check the Market and Get Competitive Rates
This is a good time to explore other lending options. Your goal should be to secure the most favourable terms. For this, you will need a clear idea about current interest rates, different mortgage products, and terms offered by other lenders. Consult with a mortgage broker to simplify this process.
#4 Always Negotiate the Terms
Once you have collected competitive rates and terms, consider negotiating with your existing lender. If they are not offering better terms, evaluate a new lender according to the improvements in the new mortgage agreement, and ensure you receive better terms in the renewed deal regarding the interest rate, repayment schedule, amortization period, and prepayment options.
#5 Ensure All Documentation is Complete
The process of getting a mortgage (or renewing one) is intricate. One area that requires a bit more due diligence is documentation, as lenders will request a lot of paperwork, including proof of income, employment verification, bank statements and other documents that can help lenders determine your financial stability.
#6 Review the New Agreement Carefully
Review the terms and conditions of the new agreement. Check the interest rate and payment schedule and ensure they align with your goals. If you need help understanding something, seek clarification from an industry professional. Ultimately, you should only sign the mortgage renewal agreement if you are happy with the terms or have no better option.
Visit the blog: Guide to Mortgage Renewal: How Do I Renew My Mortgage? (remax.ca)
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