When you first get your mortgage, you’re probably not thinking about the renewal process. After all, you’ve probably jumped through a lot of hoops to get your application approved, and the last thing you want to do is think about another lengthy process. But before you know it, your term – whether it’s 1 year, five years or longer – will be up, and you’ll have to deal with renewing your mortgage.
Mortgage renewal process
A mortgage renewal is when your current term comes to an end and you sign on for a new term. (Or pay off your mortgage, in which case it’s time to pop the champagne since you won’t need to sign up for a new term at all!) This is an opportunity for you to renegotiate the terms of your mortgage contract, including the length of your next term, your mortgage interest rate, and even your lender. While some people bemoan the fact that you can’t lock in your terms for the entire amortization period of your mortgage like you can in the U.S., being able to change the terms of your mortgage at set intervals means that you can also change your mortgage to better align with your needs that may have changed since you first got your mortgage or last renewed it, as well as with what’s happening with the housing market at large.
When your mortgage term is nearing an end, keep an eye on your mailbox or your email inbox. Most lenders – at least federally regulated lenders – are required to provide you with a renewal statement at least three weeks before the end of your term. This may come in the mail or via email, and it will include information about your mortgage that’s included in your normal statements, such as your current balance, payment amount, payment frequency, etc., as well as a renewal form that you can sign and send back.
When you sign for a new term, you’re essentially signing a new mortgage contract – what’s been paid during the previous term is gone. So if you have $350,000 remaining on a mortgage that was originally $475,000, your new mortgage will be for $350,000.
Signing could hurt you
Most homeowners renew their mortgage with the same lender that holds their current mortgage. That’s not a big deal on the face of things, although a 2015 mortgage consumer survey found that more than half of homeowners renewed their mortgages without negotiating different terms than those that were presented to them in their renewal statement. Perhaps because of this, lenders tend not to be overly generous with their terms since they don’t have to be. Come renewal time, lenders are betting on the fact that you won’t want to deal with switching lenders and the hassle of providing all the documents needed to qualify for a mortgage with a different lender, and therefore aren’t bending over backwards to try and keep you. It’s much easier and more convenient to simply accept the terms, sign the document, and send it back, but you could be leaving thousands of dollars on the table because you can probably find better rates and/or more flexible terms elsewhere. Don’t feel like shopping around? Call your mortgage broker to do it for you.
If you are leaning toward switching lenders, it’s probably because you will save money in the long run. But in the short term, you could drop quite a bit of money in order to switch lenders, such as paying for an appraisal and/or other administrative costs associated with discharging a mortgage from your current lender and registering it with your new lender. You may also have to enlist a lawyer or notary and pay legal fees. If you still have quite a while left on your amortization, the money saved by getting a lower interest rate and/or avoiding high prepayment penalties will allow you to pay off your principal faster and discharge your mortgage sooner, which means that paying the upfront fees to switch lenders would be worthwhile. If you only have a few years left on your mortgage, however, it may make more sense to stay put. Something else to keep in mind is that a new lender or your mortgage broker may be willing to swallow many of these costs for you. Ask before you commit to the switch so that you know exactly what to expect.
Early renewal options
Some mortgages have an early renewal option as one of their conditions. This is a handy option when interest rates start to rise and you are locked into a mortgage that will not mature for a few more months. You may also be allowed to lock in interest rates a certain amount of time before renewal, so if rates change between then and the maturity date of your term, you’d be given the locked-in interest rate.
At renewal time, some mortgages offer a break on a prepayment, where you’re allowed to make a lump sum payment towards your principal without incurring any fees for doing so. Check the terms of your mortgage contract to see whether or not this may apply to you.
Mortgage renewal problems
If you’ve been making your payments on time without fail, you shouldn’t have a problem at renewal time. In some cases, however, your lender can choose not to renew your mortgage. If your credit rating has dropped significantly during your mortgage term, for example, you could find yourself scrambling to find a new lender if your current lender no longer finds you to be a worthy borrower. There are other alternatives and you can always take your mortgage to another lender, although you will probably end up paying higher interest rates, the same as you would have done if you had poor credit history at the time when you secured your mortgage.
You could also face less favourable terms if your financial situation as a whole is different at the time of renewal than it was when you got your mortgage last. For example, if you and your partner were salaried employees when you got your mortgage but one of you has started your own business or one of you is receiving employment insurance, then that will come into play as well. If you know your mortgage is coming up for renewal soon, do whatever you can to stabilize your finances, just as you did when you first submitted paperwork to your lender.
Don’t forget your broker
Brokers aren’t just helpful when you get a mortgage for the first time. They’re able to help during the mortgage renewal process in exactly the same way they did the first (or second) time around: by shopping for the best rates among multiple lenders and doing the legwork for you. Contact your broker up to a few months before the end of your term so they can get going on the process for you. Even if you like the interactions that you’ve had with your current lender and you want to stay with them, a mortgage broker can be extremely helpful during the negotiation process, making sure that you still get the best terms and rates possible.
Knowing what the mortgage renewal process entails and being prepared for it will allow you to be confident about your mortgage choices and continue to be secure in making your mortgage payments for the duration of your next term.
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