Mortgage & Wealth Strategies

Increased Rates Shadowing Your Upcoming Mortgage Renewal? Learn How You Could Save Thousands!

February 9, 2024 | Posted by: Matt Broom-Hall

With the Bank of Canada's substantial rate increases, homeowners are facing uncertainty about their upcoming mortgage renewals. If you're feeling the pressure from the recent spikes, it's essential to know that you have options to manage your situation effectively.

However, it's crucial to remember that being proactive is your best defense against these changes. Our guide below will help you navigate your upcoming mortgage renewal and share tips to save you some of your hard-earned money in the process!
 

The end of your mortgage term doesn't signify the end of your mortgage journey. If you still have an outstanding balance to pay, you will need to renew your mortgage for another term. The law requires your lender to send a renewal notice 21 days before your term ends. However, most lenders are more proactive and allow you to renew anytime within the last 120 days of your current term without any penalty - a practice known as early mortgage renewal.

The Early Renewal Offer

During the last 120 days of your term, your lender is likely to approach you with an early renewal offer. This offer typically includes a new mortgage rate, usually about 0.75% less than their posted rate, and a renewal for the same length as your current term. The lender will send you a letter to sign to accept the offer. Once signed, this letter essentially binds you into renewing your mortgage with your current lender for another term.

This process might seem exceedingly convenient. Sign the letter, send it back, and your mortgage gets renewed without a hitch. However, convenience might come at a steep price. By accepting the early renewal offer, you might end up with a higher interest rate compared to what you could have secured by working with expert mortgage brokers, like us, and switching to another lender.

Should You Accept The Early Renewal Offer?

The decision to accept your lender's early renewal offer hinges on the offered interest rate. Remember, it's improbable that your current lender, despite having offered the best rate for your previous mortgage term, will present the lowest rate available in the market today. Therefore, your safest bet is to explore options with other lenders to find the most competitive rate.

Here's an example illustrating the potential savings of shopping around for a better interest rate at mortgage renewal time:

Imagine having a home valued at $350,000 with a $280,000 mortgage (with a 25-year amortization period). Your 5-year fixed-rate term is up for renewal, and your lender offers a new 5-year term at a fixed rate of 5.74%. Accepting this offer would lead to a total interest payment of $75,747 over the 5-year term (with monthly payments of $1,723).

However, if you shop around using a mortgage broker, you might find another lender offering a 5-year fixed rate of 5.09%. Accepting this offer, you'd pay just $66,955 in interest over the 5-year term. That's a savings of $8,792 over five years compared to your current lender's early mortgage renewal offer. Plus, your monthly payments drop to $1,616.

Switch Lenders at Renewal for Better Rates

Don’t settle for the convenience of your current lender’s early renewal offer, which might not be the best deal available. By shopping around, with our assistance, you could potentially save thousands over the term of your mortgage.

Stretching Out Your Mortgage Amortization

Another tactic to consider is extending your mortgage amortization period. This is the total length of time it takes to pay off your mortgage, and by extending it, you can reduce your monthly payments, giving you more breathing room in your budget.

When to Consider Extending Your Amortization

• Insured Mortgages: If you have less than 20% equity or purchased default insurance, extending your amortization could mean giving up the advantage of lower insured rates. Assess if the monthly savings from a longer amortization outweigh the benefits of a lower rate.

For those entering their second or third mortgage renewal, which often happens after 10 or 15 years with standard five-year terms, considering a lengthier amortization could be beneficial. This move could significantly reduce your monthly payment amounts. Although you might encounter a modest rise in the interest rate, the overall effect could ease your monthly budget substantially.

• Uninsured Mortgages: Those with 20% or more equity may have access to insurable rates even if they extend to a 25-year amortization. For uninsured mortgages, extending up to 30 years could significantly decrease your monthly payments, although it might lead to higher interest costs in the long run.

Let's look at a practical example: you have a $500,000 mortgage and 20 years left of your original 25-year amortization. With a current interest rate of 4.99% on an uninsured five-year term, you would be paying close to $3,280 each month. If you decide to spread your loan over a 30-year term instead, your monthly payment could shrink to nearly $2,660. This strategic extension could translate to saving upwards of $600 per month, providing substantial relief to your monthly financial obligations.

Not Up For Renewal But Want To Extend Your Amortization?

If the idea of extending your amortization appeals to you, but your renewal date is not on the horizon, it's worth examining the possibility of breaking your mortgage term early. While this move can come with a pre-payment penalty—often steeper for fixed-rate mortgages due to the Interest Rate Differential (IRD), as opposed to three months' interest for variable-rate mortgages—the long-term benefit of lower monthly payments may justify the initial expense.

Finding the Best Mortgage Strategy for You

Whether it's securing a lower rate by switching lenders or extending your amortization for more manageable payments, the best strategy depends on your financial situation and long-term goals. It’s advisable to speak with us to guide you through these options and help find the right path for you.

Get Expert Mortgage Advice

We're dedicated to asking the right questions and exploring all possibilities to save you money. With access to numerous lenders and products, we can provide tailored advice that suits your needs. Contact us to discuss your mortgage renewal strategy and let us help you make an informed decision that benefits you for years to come.

Get Started on Your Mortgage Renewal Today!

If you're within 120 days of your mortgage renewal, Click Here to Book A Call. Let's find out if your current lender is offering a great rate or if there's a better one out there for you! We may also be able to restructure the mortgage to lower your payment! 15 minutes could save you thousands!

Never Miss Your Mortgage Renewal with Our Reminder Service

Life can move fast and it's all too easy for important dates to slip through the cracks. That's why we're introducing our new mortgage renewal reminder service to keep you on track and ahead of the game.

Here's how it works:

1. Sign Up: Fill out the short form below with your contact details and the expiry date of your current mortgage term.

2. Stay Informed: We'll send you a reminder 120 days before your mortgage renewal date. This gives you ample time to explore the market and reassess your mortgage needs.

3. Enjoy Peace of Mind: With our reminder service, you can relax knowing you won't accidentally overlook your mortgage renewal. Our expert brokers are ready and waiting to help you secure the best rate possible for your renewed mortgage.

Back to Main Blog Page