Renewing your mortgage? 3 things to consider apart from just the rate

Thanks to inflation and the Bank of Canada’s seven interest rate hikes this year, Canadians looking to renew their mortgages are keeping a close eye on fixed and variable interest rates.

While rates are arguably one of the most important factors to consider when renewing your mortgage, they’re not the only thing to keep in mind. Here are three other things to consider when it comes time for your mortgage renewal. ​​

Your current financial situation and income

Your financial situation may have changed since the last time you renewed your mortgage. Maybe you earn more, switched careers, got married, had kids, or are taking care of your parents. Whatever the case, your budget doesn’t look like it did five or even three years ago.

Your financial commitments and new goals may have changed, and you may have access to more or less money. This can affect what kind of mortgage you need. Maybe you need lower payments, so a longer amortization can benefit you. Or maybe you inherited some money and want the flexibility to make bigger lump sum payments to pay off your mortgage faster and need a loan that allows you to do this.

How long you plan to live in your home

You might be considering upsizing or downsizing your home over the next three to five years and want your renewal to be as flexible as possible.

If that’s the case, you’ll need to consider mortgage portability. That’s when you take your current mortgage, including the rate and terms, and transfer it to another home. Porting your mortgage is something you can do if the plan is to buy a new home and sell your current property at the same time. Not all financial institutions offer portable mortgages, so do shop around for this option.

If you’re really close to paying off your mortgage, the type of mortgage renewal and penalties are also important as it determines how much you’ll have to pay in prepayment penalties. The penalties could be:

• An amount equal to 3 months’ interest on what you still owe (usually on variable-rate mortgages)
• The ​​interest rate differential (IRD), whichever is higher (usually on fixed-rate mortgages)​

Your comfort level

The Bank of Canada has raised the overnight interest rate seven times this year, bringing it from 0.25% in January to 4.25% at the December announcement. ​​This significant increase means Canadians are turning back to fixed-rate mortgages.

A recent RATESDOTCA report revealed that the preference gap between variable- and fixed-rate mortgages has narrowed considerably since the summer. And, according to the November Residential Mortgage Industry Report, from the Canada Mortgage and Housing Corporation, homeowners are turning back to fixed rates. The report also reveals that it’s become more difficult to pass the stress test due to the rapid increase in rates in 2022.

Not everyone likes or wants their mortgage payments to fluctuate. Some prefer a fixed payment over the term of their mortgage as they can better plan and budget for it. Others may prefer a variable rate if they’ve got a higher tolerance for changing rates, a higher trigger rate, or are expecting rates to drop during their mortgage term and hope to benefit from it.

Compare mortgage rates before your renewal

Before you sign your mortgage renewal, remember to always compare both fixed and variable mortgage rates as well as the best terms for your current financial needs.

That way, you’ll be confident that you’re getting the best mortgage renewal rates, and that you’re financially comfortable for the next few years until you have to do it all over again.

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