We all have those burning questions that keep us up at night.
Who am I?
Are we alone in the universe?
How does a mortgage renewal work?
We don’t shy away from the daunting questions around here.
While we might not be able to help with question one and two, we can definitely help you understand the ins and outs of mortgage renewals.
What Is A Mortgage Renewal?
Simply put, a mortgage renewal is when you renew your existing mortgage agreement with your current mortgage provider once your term has expired.
It really is that simple. But there are of course other things to consider.
How Does Mortgage Renewal Work?
When your mortgage term is coming to an end, keep a close eye on your email or mailbox. All federally regulated lenders are required to provide you with a renewal notice at least three weeks before your term ends.
Three weeks is cutting it close and we often see most lenders reach out anywhere between six and three months before your renewal is due.
When you sign for a new term, you are basically signing a new mortgage contract. For example, if you have $200,000 remaining on a mortgage that was initially $400,000, the new mortgage will be for $200,000.
However, some of the terms will have likely changed from when you first signed your mortgage.
Interest rates have risen over the last year, so your renewal interest rate will likely be higher. This means that your regular payment will also increase.
Common Mortgage Renewal Questions
How Early Can You Renew Your Mortgage?
Typically, you can start the mortgage renewal process up to 120 days before maturity. This is just after that six month mark.
This period is crucial because it gives you enough time to shop for the best rates and terms if you’re not happy with your lender’s renewal offer.
We encourage folks to review their current mortgage about a year out from renewal. We know that it can seem like a long time, but time flies by. It’s better to know all your options sooner rather than later.
If you wait until the last minute, you may find yourself accepting a less-than-ideal offer due to time constraints.
Do You Have to Renew Early?
No, you do not have to renew your mortgage early.
Many lenders will try to secure you again for another term early because that’s what’s in their best interest — they are a business.
But, another good reason to look at renewing early is to secure a lower interest rate, especially in our current economic environment.
Can a Bank Deny Mortgage Renewal in Canada?
Now, this is a question that should be at the top of our list.
Yes, a bank can deny a mortgage renewal. However, this is rare and usually happens when a borrower has consistently failed to make their mortgage payments or has significantly damaged their credit score.
Not you? Great.
But, if your bank does deny your renewal, don't panic – you’ll have a few different options:
Talk to your current mortgage lender: If you were denied due to higher interest rates or income changes, you may be able to extend your mortgage amortization to make the payments fit your budget.
Find other lenders: Smaller banks, credit unions, and mortgage investment companies may have less strict lending requirements. You will have to re-qualify again, but working with a mortgage broker can help you through this process.
Sell your house or downsize: While this may be a last resort, it may be necessary for keeping your costs in check.
Can You Pay Off Your Mortgage at Renewal?
Yes, you can pay off your mortgage at renewal, but you must be very diligent on the specific timing on this, otherwise you may face an early repayment penalty.
The amount of early repayment fees will mainly depend on the lender you are working with, the type of mortgage product you have, how much you have remaining on your mortgage, etc.
If you’re breaking before the renewal date, a variable rate mortgage typically has a penalty of three months interest. Fixed-rate mortgages may have higher payment penalties determined by using a complicated formula called Interest Rate Differential.
Will My Mortgage Automatically Renew?
If you do not take any action after receiving all the paperwork and calls from your broker and lender, your mortgage will likely automatically renew at the end of its term.
However, this is not always the best option.
Auto-renewal often means you end up with your lender's posted rate, which might be less competitive than other lenders.
It's always a good idea to actively participate in your mortgage renewal process to ensure you get the best possible product for your situation.
Do I Have to Renew With My Current Lender?
This is a bit of a trick question.
No, you do not have to renew your mortgage with your current lender.
However, if you don’t renew with them and want to move to a different lender, you will have to re-qualify. This would be a new mortgage with a different lender.
There might be options to switch or transfer your mortgage to another lender. Generally if we can switch you at time of renewal, there are no additional fees. Again, it’s all about the timing!
A ‘Renewed’ Energy
Maybe we should become full-time comedians with these puns.
But until then, we’ll stick to our day jobs.
Mortgage renewals are the best time to review not only your mortgage, but your current financial situation. If you have high-interest debt, it might be a good time to refinance and consolidate it into the mortgage.
Maybe it’s time to move or you want to make a simple change to the payment schedule.
Renewal is the best time to look at it all.
And not to worry. You don’t have to figure out the answers to the hard questions all by yourself.
Even if you didn’t work with one of our mortgage brokers on your initial mortgage term, one of our pros would be happy to help review your renewal paperwork and make sure you’re getting the best terms.