Mortgage renewals tougher

According to a new CIBC report, nearly half of all mortgages in Canada are up for renewal this year, which is more than any year in history.

What you should realize is your options may be limited if you thought you might shop around for a better deal with another lender.

Rising interest rates and the new mortgage stress test have made "shopping around" more difficult than ever.

Although, if you are like most Canadians, you probably aren’t that proactive regarding your mortgage renewal; only 36 per cent of Canadians change their mortgage lenders at renewal.

It’s an interesting statistic since an average of 55 per cent of mortgage holders in other countries change lenders at renewal.

According to HSBC data from this January, 82 per cent change in France while in the U.S. it's 53 per cent and Australia it's 48 per cent.

Why don’t Canadians shop around at renewal time?

Perhaps it’s because 78 per cent of Canadian mortgage holders have never experienced a rate increase in the lifetime of their mortgages.

Yet, 20 per cent of homeowners would struggle to make their payments if confronted with an interest rate increase of two per cent.

Five years ago, which is the average term most Canadians take on a mortgage, discounted mortgage rates were somewhere between 2.44 and 2.79 per cent.

Today, five-year fixed term mortgages rates range between 3.24 per cent to 3.89 per cent. This year, most who are renewing will be facing higher interest rates.

Mortgage renewals will also start feeling the effects of another change at the end of this year, a new International Financial Accounting Standard called IFSR 9.

IFSR 9 covers more than mortgage lending; lenders will have to set aside additional reserves for each mortgage file to cover any substantial change in a client’s profile.

The only way for a lender to know if there has been a change in a client’s profile will be for them to update the information, and mortgage renewal time seems to be the most obvious time.

We don’t know how lenders will handle the new requirement, but checking credit and re-confirming employment seem like the most likely ways to do that. Potentially lenders could ask for appraisals or income confirmation, for example, before making a renewal offer.

We are already hearing of some lenders "verifying" files prior to renewal by implementing the new requirements in advance of the deadline.

We have been contacted by clients who are not being offered renewals because of significant changes in their information and from others who are still being offered renewals, but at much higher rates.

The days of automatically being offered a renewal of your mortgage as long as you were making your payments on time and without re-qualifying may be gone in the future.

My best advice hasn’t changed: Don’t be average. Shop around in advance of your renewal, and the easiest way to do that is by working with a mortgage broker.

We can compare what’s being offered in the market, make recommendations of how you can reduce your interest costs and help you with a plan to pay off your mortgage.

If you would like more information or a review of your current mortgage renewal offer, please give me a call at 1-888-561-2679 or email [email protected].

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.