Questions to ask if you are planning to renew your mortgage

The Office of the Superintendent of Financial Institutions has announced that starting Nov. 21, it would no longer require a “stress test” (qualifying at 2% over the contract rate) for uninsured mortgages when borrowers make a straight switch between lenders, meaning they aren't changing things like their amortization or borrowing amount.

Approximately half of all mortgages in Canada are set to renew in 2025 or 2026 due, in part, to the real estate frenzy that transpired over the course of the COVID-19 pandemic along with record low interest rates.

Analysts estimate $251 billion in mortgages will have come up for renewal in 2024 and another $352 billion next year. Most borrowers will face higher interest rates with increased mortgage payments, so, it’s smart to have a plan for managing your mortgage going forward.

When your current mortgage is getting close to its maturity date, you will need to re-negotiate your mortgage. This is the opportunity to decide on the new term length, negotiate the new mortgage interest rate and even move your mortgage to a new lender.

Most lenders (federally regulated) are required to provide you with a new mortgage offer at least three weeks before your maturity date, if they are interested in renewing your mortgage. They are not obligated to offer you a renewal should there be a change in your circumstances or a late payment history.

Statistics show more than 50% of homeowners renew their mortgage with the current lender without negotiating the terms. That doesn’t give the lenders much incentive to offer the best rates at renewal time. They are betting on the fact you won’t shop around or won’t want to go through the hassle of applying for a mortgage with a new lender.

Signing the mortgage renewal offer without exploring other options is not in your best interest. Yes, it’s easier to remain with your current lender as you don’t have to go through the hassle of providing new documents etc. But you could find better rates and terms with another lender, perhaps saving you thousands of dollars in interest costs.

Here are a few questions to ask yourself before you sign that mortgage renewal offer:

• Have you explored all your options? A mortgage broker can look for opportunities that could better meet your needs right now.

• Do you need cash flow for other things? Your priorities may have shifted since you first bought your home, and your cash flow needs can shift too. Things like paying for a child’s university education, planning a career change, or a major purchase such as a vacation property may call for spending money on things other than your home. You may be able to refinance your mortgage to take this into account.

• Can you handle fluctuating rates? Some homeowners are nervous about any hikes in interest rates, while others are comfortable to go with the flow. Rates are tough to predict. It’s best to base your decision on your personal situation, not what you read in the news, and tailor your mortgage renewal around your needs. A mortgage broker can help you decide whether to opt for fixed or variable rates.

• Will you sell soon? If so, you might want to consider a shorter-term mortgage or one that has flexible terms so you’re not penalized if you sell your house before the mortgage comes due. Not all mortgages can be moved to a new property.

• Are you thinking about a major renovation? Before you renew, look at all your financing options, which may include getting an additional line of credit or keeping your monthly mortgage payments low so you have money on hand to finance the renovations.

• When do you want to be “mortgage-free”? If you’re planning extended time away from work or perhaps an early retirement, it may make sense to pay down your mortgage sooner rather than later or re-structure your current mortgage so you have access to your home equity once you retire as you may not qualify for mortgage financing at that time.

• Could you use your home equity to fulfill other goals? Refinancing a mortgage can be one way to free up cash you need for other things, which could even include buying another property. Mortgage renewal time is an ideal occasion to review all your options.

• Are you getting the best rates and terms? In a competitive mortgage environment, your good credit history can make refinancing work to your advantage. A mortgage broker can analyze mortgage markets daily to ensure you don’t miss any money-saving opportunities.

By working with a mortgage broker, you gain access to a wide range of mortgage options from various lenders. A mortgage broker can help you shop around for the best rates and guide you in understanding the different terms and conditions associated with each mortgage product. This ensures that you can make an informed decision, aligning your mortgage choice with both your short-term and long-term financial goals.

If you would like to discuss your upcoming mortgage renewal and explore the possible options available to you, please feel free to book a convenient time on my calendar for a quick chat. You can find my calendar here: calendly.com/april-dunn or you can email me at [email protected]

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