Mortgage Renewal Process Explained
What it Means to Renew Your Mortgage
If your mortgage term is coming to an end and you have not finished paying off the loan yet, you are going to need to renew your mortgage for the remaining balance.
Your current mortgage interest rate only stays locked in for the length of your term. When a mortgage is nearing its renewal date, your current lender might offer you an attractive renewal interest rate and term, provided you have been making all of your monthly mortgage payments on time.
However, shopping around could be very beneficial to you. You could be saving thousands of dollars in the long run if you renegotiate the terms with your current lender or find a new lender to switch your mortgage to that may offer you a more favourable rate and set of conditions.
We will be discussing everything you need to know about renewing your mortgage, including how and when to get started, plus advice on whether to stay with or switch from your current lender.
How to Know When It’s Time to Renew
At least 21 days before your current mortgage term is over, your lender will send you a renewal statement that includes:
- The remaining balance
- The interest rate
- The payment schedule
- The term length
- Any applicable renewal fees
Also included is a renewal form that you can sign and send back to your lender if you agree to accept their terms and renewal offer.
Don't be too quick to sign your current lender's renewal agreement because you might be able to qualify for an even lower rate and better terms by switching to a different mortgage lender with the help of a knowledgeable mortgage broker.
Renew Early
The best way to get a mortgage that is right for your needs is by shopping early. Most lenders will allow you to start an early mortgage renewal process 120 days, approximately 4 months, before your mortgage term ends.
At this point in time, borrowers can renew without being charged any prepayment penalties for breaking the mortgage contract. This allows borrowers to lock in a desirable interest rate early, while not facing any additional prepayment fees.
With interest rates currently sitting at record-lows and rate hikes forecasted in the future, borrowers with an excellent rate and set of conditions with their current mortgage could consider early renewal to get a low interest rate while they still can. However, before they sign the renewal with their current lender, they should always first reach out to an experienced mortgage broker to see if there may be better options available to you for your mortgage rate and terms.
For the most part, borrowers would still likely reap rewards from shopping their mortgage around and looking at other mortgage products. Call your mortgage broker and start exploring other options as early as 6 months to 1 year before your current mortgage renews because the savings you might get could prove to be well worth it.
Assess Your Finances, Goals, and Mortgage Needs
Before you decide whether to sign and renew with your current lender or switch to a new one, you should have a strong understanding of your current financial situation as well as what your financial plans might be in the future.
Your Finances and Goals
Your finances and the goals you were working towards when you first took out your mortgage could very well be different from your finances and goals today.
- Has your income changed? You may have gotten a raise, lost your job, or retired.
- How many dependents do you have? Perhaps you had a child, or you have to care for a loved one.
- Are you paying university tuition for your kids?
- Are you thinking of moving to another home in the next few years?
- How much equity have you built in your property?
Since you took out your mortgage, life happened. A major benefit of the mortgage renewal process is you have the opportunity to adjust your current loan to fit with your changing circumstances. A mortgage broker can help you assess your finances and find a mortgage that works for you.
Your Mortgage Needs
As your finances and future plans change, your mortgage needs may have to be adjusted.
- Can you afford higher monthly mortgage payments? Consider a mortgage with prepayment options.
- Will you have your mortgage paid off by the next term? Look at any prepayment charges and how low variable rates could benefit you.
- Are you making a move in the next few years? Ensure you won’t be facing big penalties.
- Do you currently have a second or third mortgage on your property? A broker can refinance your first mortgage and combine it with your second mortgage to get one much more affordable first mortgage at a much lower interest rate.
If your mortgage needs have changed, make sure to negotiate your current mortgage terms or shop around for a better mortgage product.
Your Mortgage Lender- Should I Stay or Should I Go?
You don’t have to stick to your current lender. Once your term ends, you are free to find the best mortgage to meet your needs.
When to Sign With Your Current Lender
You might be happy with the service from your current lender, but would like to renegotiate some of the terms. Make sure to tell your current lender that you will be looking at other options to incentivize them to adjust their terms.
If your lender is already offering you a very low interest rate, with great terms and conditions, then signing could be your best option. To avoid the difficulties of finding a new lender, many borrowers choose not to look around and agree to the terms their lender sets.
Lenders are well aware of this unfortunate habit, and as a result, they won’t be giving you the most favourable renewal terms because they know they won’t have to work hard to keep your business.
Fortunately, mortgage brokers have access to many different lenders who would go the extra mile to gain your business and take it away from one of their competitors. As a result, the right new lender will oftentimes offer you lower mortgage rates and more favourable terms.
When to Switch to a Different Lender
The Pros
Switching to a new lender could save you major costs in the long run. Securing a lower interest rate, especially if you have quite a few years until the loan matures, will save you enough money to outweigh any costs for switching lenders.
A new lender may also offer you more flexible terms and conditions. If you’re moving in the next few years, your income changes, or another obstacle impacts your life, you may need to break your mortgage contract or make some prepayments. As such, you want to be sure you won’t be facing hefty penalties.
The Cons
Switching to a new lender may come with some costs. There may be some upfront fees including registration, discharge, and reassignment costs. Your new lender may also request a property appraisal. While these costs could be high in the short term, they could be easily outweighed by the long-term savings.
If the amount of your new mortgage loan is higher and you need to extend the amortization period, you may need to pay a new mortgage loan insurance premium. If you already have mortgage insurance on your current loan, inform your new lender to avoid this added cost.
To switch lenders, borrowers also have to pass the stress test again. Most pass the stress test the second time around though, since many borrowers will have a higher income and a lower loan amount. Even if you don’t pass, a mortgage broker could consolidate your debts into one low-interest loan, making interest payments much lower while also putting you in an improved position to qualify for a new mortgage.
The Key Takeaway
If your mortgage term is coming to a close, you have the chance to renew or refinance your remaining loan balance at a better rate, with improved terms and conditions, or to take out a higher mortgage amount using the home equity you’ve built up in your home. Rather than simply accepting your lender’s renewal terms, try to renegotiate with them, and ALWAYS reach out to a mortgage broker to learn what other options are available to you with other lenders. You will oftentimes find that you can get a better rate and better terms by switching to a new lender through a knowledgeable mortgage broker. A good mortgage broker has access to dozens of other mortgage products that could save you costs in both the short term and in the future, even if switching to another lender comes with a few costs.
Renew With a Mortgage Broker
When it’s time to renew, get help from a knowledgeable mortgage broker at Clover Mortgage. We will find you a mortgage at the lowest rate with the most ideal terms and conditions available to you. Don’t go with the first offer your lender makes-- let our brokers renegotiate or find you a new mortgage for the best deal possible.
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