Mortgage Renewals: A Comprehensive Guide for Canadian Homeowners

July 22, 2024 | Posted by: Della Dwyer - Your Trusted Barrie and Surrounding areas Mortgage Broker

A homeowner's journey doesn’t end once you buy a house. Mortgages, the financial instruments that allow us to acquire our dream homes, come with periodic renewals. These mortgage renewals are crucial junctures, offering the opportunity to reassess your financial situation and potentially secure more favourable terms. 

This guide will give you the knowledge you need for a smooth and successful mortgage renewal experience in Canada.

The Essentials of Mortgage Renewals

When you buy a house, there are 2 key timelines you need to be aware of - the amortization period and the mortgage term. 

The amortization period is the total amount of time it will take to pay off the entire loan if you make monthly payments. These payments are made up of a principal amount (the amount you need to borrow to pay for the house) and the interest (the cost of borrowing the principal). You can choose any amortization period that makes sense to you, up to 25 years, though most choose to take the full 25 years. 

The mortgage term (usually 1 to 5 years) is the period that the current interest rate is locked in for. 

A mortgage renewal signifies the conclusion of your current mortgage term. At this point, your lender is obligated to send you a renewal notice, outlining the details of your existing mortgage and the terms they propose for the upcoming term. This notice, by law, must be delivered at least 21 days before your current term expires.

The renewal period presents a valuable opportunity – shopping around. 

You see, Canadian homebuyers are not restricted to staying with your current lender. In fact, it is recommended that you leverage this time to compare rates and explore offerings from other financial institutions. While it can be time consuming, shopping around gives you the opportunity to find the best possible rate in the current market conditions. 

The Mortgage Renewal Process: A Step-by-Step Guide

The mortgage renewal process doesn't have to be a mysterious labyrinth. By following these steps, you can navigate your renewal with confidence and secure the most favourable terms for your situation.

1. Receive Renewal Notice: Your lender will send you a renewal notice outlining your current mortgage details and proposed terms for the upcoming term. 

2. Review the Notice: Carefully examine the details in the renewal notice, including your current interest rate, the proposed rate for the upcoming term, and any applicable fees. Don't hesitate to seek clarification from your lender on any aspect you find unclear.

3. Evaluate Your Options: Don't simply accept the initial offer. Use the free look period to research and compare mortgage renewal rates from other lenders, including banks, credit unions, and other lenders. To streamline your process consider working with a mortgage broker to find the best lender for your situation. 

4. Negotiate: If you find a more favourable offer elsewhere, use it as leverage to negotiate a better rate with your current lender. Remember, competition can be your friend! 

5. Finalize the Renewal: Once you've selected the most advantageous offer, finalize the renewal with your chosen lender. This typically involves signing a new mortgage agreement.

Key Dates To Avoid Missed Opportunities

Timely action is essential during a mortgage renewal. Here are the critical dates to remember:

• Renewal Notice: Your lender has a legal obligation to provide you with a renewal notice at least 21 days prior to the conclusion of your current term. This document will detail your existing interest rate, the proposed rate for the upcoming term, and any applicable fees.

• Free Look Period: Following receipt of the renewal notice, you have a window of time (generally 30 days) to research and compare rates from other lenders. This period empowers you to secure a potentially more favourable offer before committing to your current lender's proposal.

PRO TIP: You don’t have to wait until you get your renewal notice to start shopping around! Get organized and begin researching a few months before your renewal to ensure ample time to make an informed decision.

Evaluating Renewal Offers: Beyond the Bottom Line

While interest rates are undeniably a critical factor, a comprehensive evaluation requires considering other aspects of the renewal offer:

Term Length: Selecting the appropriate term length hinges on your financial goals. A shorter term might provide greater flexibility, while a longer term could offer stability with a locked-in rate.

Payment Frequency: Consider your budgeting preferences. Bi-weekly payments can accelerate mortgage payoff, while monthly payments might better suit your cash flow management.

Prepayment Options: Explore the availability of lump sum prepayments without penalty. This strategy can significantly reduce your overall interest burden.

Exploring Early Mortgage Renewal

In some cases, you might consider an early mortgage renewal. This involves renewing your mortgage before your current term expires. If you’re thinking of going this route, there are some important things to consider. 

Firstly, many mortgages come with prepayment penalties if you refinance before the term ends. Carefully assess the penalty amount to determine if the potential savings from a lower rate outweigh the cost.

You also need to consider the current and projected interest rate environment. If rates are expected to rise, an early renewal to lock in a lower rate might be beneficial. However, if rates are expected to fall, waiting until your term ends could be more advantageous.

Seek Clarification and Professional Guidance

Mortgage renewals can involve complex financial terminology. Don't hesitate to seek clarification from your lender on any aspect you find unclear. 

Additionally, consider consulting a mortgage broker. Their expertise in comparing rates and navigating loan options can prove invaluable in securing the most advantageous terms for your specific financial situation.

A Successful Renewal: Taking Control

By following these guidelines and exercising due diligence, you can approach your Canadian mortgage renewal with confidence. Remember, the renewal period empowers you to ensure you're receiving the most favourable terms for your home loan. So, equip yourself with knowledge, explore your options, and navigate your renewal like a seasoned homeowner.

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