Mortgage vs. HELOC
Do you have a plan for when your mortgage reaches maturity? You better, because your borrowing cost depends on your renewal strategy! This guide provides information on renewing a mortgage, as well as some tips to help you find a better deal.
Many homeowners think it’s best to stick with the bank or lender that provided their initial mortgage. That’s often not the case.
Shopping around at renewal is fundamental to finding better deals. Step one is to compare rates.
Homeowners should check Rates.ca to find the most competitive mortgage interest rates currently available. Doing this could reduce your rate by one-tenth or two-tenths of a percentage point. Sometimes more.
That amounts to roughly $940 in interest savings for every $100,000 of mortgage over five years.
If you plow those thousands of dollars in savings onto your mortgage, it could literally shave years off your amortization period. That means your mortgage is paid off sooner, and for less.
There are sometimes good reasons to stay with the same lender.
The first reason is convenience. Your existing lender doesn’t have to requalify you, so the renewal process is faster than if you were to switch to another company.
The second (and better) reason to stay put, is if your financial situation has worsened. If you are worried that a new lender would not approve a loan, or you would fail a mortgage stress test, re-signing with your existing provider is the safest thing to do (renewing doesn’t require you to pass the federal mortgage stress test, but you might be stuck with a higher rate).
A sizable minority of borrowers accept their lender’s first renewal offer. That’s a big mistake.
Like regular mortgages, renewal rates are negotiable. Leverage the rates you find online to convince your lender to match competing offers. If it doesn’t move its pricing, and its rate is more than 0.05 to 0.10 percentage points from the best available rate for a similar or better mortgage, consider leaving.
Just make sure you’re comparing apples to apples because mortgage features, the property location, etc. can affect the rate significantly. And don’t forget that switching lenders takes time and (often) money. Closing costs on a “switch” vary from $0 (if the new lender pays all your costs) to over $1,000.
In accordance with the Bank Act, lenders cannot “coerce a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank.”
If a lender attempts to pressure you into signing up for unwanted products in order to renew your mortgage, they are breaking the law. Ask them to state their position in writing, report them to the lender’s management and the Financial Consumer Agency of Canada and take your business elsewhere.
As long as you’ve been making your mortgage payments on time, your current lender will almost certainly want to keep your business. However, if you have missed payments, or otherwise not complied with your mortgage contract, your current lender does not have to renew your mortgage.
If a mainstream lender decides not to renew you, they must inform you at least 21 days before your current mortgage term expires. This should give you enough time to find another lender, but if you have very poor qualifications, you will have to act fast.
If you are struggling to secure a mortgage renewal, consult a mortgage broker. They’ll help you find a lender with a greater risk tolerance, one more willing to accept clients with a weak credit history or issues proving sufficient income. Note, however, this flexibility entails a higher interest rate.
All key points and specifications on a renewal contract for mortgages (like your remaining amortization) should remain the same as your existing mortgage. If there are any changes imposed by the lender, you must be informed in writing before your current mortgage term expires. If they are not renewing your policy at all, legally they only have to provide 21 days notice.
Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.
Here at Rates.ca, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors. Find the best mortgage rates in your area today.