Renewal and Refinancing

9 Tips for a Successful Mortgage Renewal in Canada

9 Tips for a Successful Mortgage Renewal in Canada
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  • Tvine
| Jan 2, 2024
Reviewed, Jan 16, 2024
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    Renewing your mortgage is an important decision that can have a significant impact on your financial situation. Whether you’re a first-time buyer or a seasoned homeowner, taking the time to assess your options and make informed choices is crucial. In this article, we will provide you with valuable tips and advice to ensure a successful mortgage renewal in Canada.


    Key Takeaways

    • Through the new Canadian Mortgage Charter, the stress test will be eliminated for insured mortgages when borrowers switch lenders upon renewal in 2024.  
    • Between the extra competition between lenders and the projection of lower rates in 2024, renewers are expected to have better rate options.
    • With the market changing, renewers should equip themselves with a solid renewal strategy in 2024.

    Are you a first-time buyer?

    Mortgage Up For Renewal In 2024? Here’s What Changed for Mortgage Stress Testing:

    When it comes to mortgage renewals, 2024 is greeting us with some good news and some bad news. The bad news is that renewing isn’t going to be fun for anyone. Buyers who secured their very low rates during the pandemic are in for some significant payment shock in the current high rate environment. 

    The good news is that in November, the federal government announced the Canadian Mortgage Charter, part of which aims to alleviate some of the financial stressors renewers will be facing in 2024. The charter suggests that borrowers with insured mortgages don’t need to pass a stress test when they are switching lenders upon renewal. Previously, renewers would have to either accept the offer made by their current lender or face a stress test with a new lender, where an additional 2% would be added to their qualifying rate. In the current high-rate market, this not only hinders borrowers’ ability to qualify and renew with a new lender, but also allows their current lender to withhold competitive rates. 

    So, what does the Canadian Mortgage Charter bring to the table? Eliminating the stress test for insured mortgages brings some competition back into the lending game and thus, could potentially result in lower renewal rates across the market. If borrowers can now qualify elsewhere, lenders will have to keep their rates competitive also to keep their renewers. 

    Prepare For Higher Rates, But Know You Can Find The Best Option By Shopping Around:

    At this point, you’re probably wondering: how much higher are we talking?

    Setting those very low pandemic rates aside, the average rate for a 5-year fixed rate mortgage in 2019 was about 3.19%. Compared to the lowest rates advertised by lenders today, you’re looking at a 2% increase on your mortgage rate– but this is a best case scenario. Banks are more likely to offer their clients their posted rates, which currently go up as high as 7.20%.

    What does this mean for your renewal in 2024? 

    One thing’s for sure: a high rate environment does not mean you need to give up on trying to get the best rate possible for your renewal. In fact, with rates predicted to go down later in 2024, crafting a renewal strategy ahead of your renewal time is the best thing you can do for your finances as a renewer in 2024.  

    Tips For A Successful Mortgage Renewal In 2024

    1. Shop Early

    One of the first steps in the mortgage renewal process is to start shopping for your renewal early. 

    Lenders will typically let you begin this process up to 120 days before your mortgage end date, without prepayment penalties. 

    By doing so, you give yourself ample time to evaluate the market conditions and determine whether rates are expected to go up or down.

    Most lenders offer a guaranteed rate– or rate lock – for anywhere between 60 to 120 days, which means that if rates go up before your renewal, you can rest assured that you have already secured your lower rate.

    Current Rate Discounted Rate from Current Lender Rate from New Lender
    Interest Rate 2.99% 5.74% 5.19%
    Monthly Payment $1,891 $2,498 $2,370
    Difference +$607 +$479

    2. Never Accept Your Bank’s First Offer

    When your current lender sends you a letter regarding your mortgage renewal, it is important not to immediately accept their first offer. 

    This initial offer is often a generic letter, and you may be offered the posted rate, which is not always the most favourable. Lenders bank on borrowers’ desire for convenience and send this offer in hopes that you accept it as the easiest solution for your renewal.

    Instead, take the time to contact your mortgage advisor and explore your options. 

    There is always room for negotiation, and your advisor can help you find a better deal that suits your needs and financial situation. By exploring different lenders and negotiating for better terms, you can potentially save thousands of dollars over the life of your mortgage.

    Are you a first-time buyer?

    3. Reassess Your Needs

    Life is constantly evolving, and so are your financial needs. Before renewing your mortgage, take a moment to reassess your situation and determine if any major changes have occurred since you initially purchased your home.

    Consider factors such as changes in your family size, improvements in your work situation, or any big upcoming projects or significant expenses you may have. By understanding your current needs and future goals, you can choose a mortgage product that aligns with your financial objectives.

    4. Compare Rates and Offers

    It has never been easier to compare mortgage rates and offers from different lenders. Take advantage of online resources to gather information and make an informed decision.

    One way to do this is by creating a spreadsheet and filling it with information from various lenders, including their rates, terms, and additional fees or charges. This will allow you to compare the different options side by side and choose the one that best fits your needs.

    If you don’t have the time or expertise to shop and compare, you can seek the assistance of a mortgage broker who can do the legwork for you. They have access to a wide range of offers from lenders and can help you find the best rates and terms for your mortgage.

    5. Consider Your Long-Term Financial Goals

    When renewing your mortgage, it’s important to consider your long-term financial goals. Are you planning to pay off your mortgage early? Do you want the flexibility to make additional payments or increase your regular payments?

    By understanding your long-term goals, you can choose a mortgage with features that align with your aspirations. For example, some mortgages offer prepayment privileges, allowing you to make lump-sum payments or increase your regular payments without incurring penalties. If you are aiming to pay off your mortgage sooner than your amortization schedule, then this is something worth looking into and negotiating towards with different lenders.

    6. Seek Professional Advice

    Navigating the mortgage renewal process can be complex, especially if you’re unfamiliar with the intricacies of the mortgage market. Seeking professional advice from a mortgage broker or financial advisor can provide you with valuable insights and guidance.

    These professionals have in-depth knowledge of the mortgage industry and can help you navigate through the various options available to you. They can assess your financial situation, provide personalized advice, and help you choose the best mortgage product for your needs.

    7. Understand the Terms and Conditions

    Before signing any mortgage renewal contract, it is essential to understand the terms and conditions thoroughly. Take the time to read the fine print and ask questions if you have any doubts or concerns.

    Pay close attention to factors such as the interest rate, payment frequency, amortization period, and any penalties or fees associated with the mortgage. Make sure you understand every facet of your mortgage agreement to ensure that you are making an informed decision and avoid any surprises down the line!

    8. Stay Informed and Be Proactive

    The mortgage market is constantly evolving, with interest rates and lending policies subject to change. Stay informed about market trends and news that may impact your mortgage.

    Be proactive in monitoring your mortgage and regularly reassess your options. Don’t be afraid to explore refinancing or renegotiating your mortgage if it aligns with your financial goals and offers better terms.

    9. Keep Your Credit Score Healthy

    Maintaining a healthy credit score is essential when renewing your mortgage. A good credit score demonstrates your creditworthiness and can help you secure better rates and terms.

    Pay your bills on time, keep your credit utilization low, and avoid taking on unnecessary debt. By practicing good financial habits, you can ensure that you are in a strong position when it comes time to renew your mortgage.

    FAQ

    What factors are considered when renewing a mortgage?

    If you switch your mortgage to a new lender, they will need to reassess your financial situation. This includes your credit score, your income/employment, and your debt ratio, as well as another stress test.

    Can I negotiate my mortgage renewal?

    Yes, there is always room for negotiation, and your advisor can help you find a better deal that suits your needs and financial situation. By exploring different lenders and negotiating for better terms, you can potentially save thousands of dollars over the life of your mortgage.

    Can I be denied my mortgage renewal?

    If you have been making your mortgage payments on time, there is no reason for your current lender not to renew you, unless they have a reason to believe that your financial situation has changed dramatically. However, unlike your current lender, a new lender will have to reassess your finances and if you don’t meet their borrowing criteria, they will deny you.

    Final Thoughts

    In the end, renewing your mortgage is an important financial decision that requires careful consideration. By following these tips and being proactive in your approach, you can ensure a successful mortgage renewal in Canada. Remember to shop early, seek professional advice, compare rates and offers, and plan for the future. With the right strategy and knowledge, you can secure a mortgage that aligns with your needs and helps you achieve your long-term financial goals.


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