What is a mortgage renewal? With a mortgage comes a mortgage renewal. Mortgages are typically offered with terms up to ten years. When your term is finished, your rate expires and it is time to negotiate a new rate.
Many Canadians spend a great deal of time shopping around to find a favourable rate when purchasing a property.
Usually your lender will reach out to you within 120 days of your renewal with an offer for you. Sadly the rates offered are not very favourable. Unfortunately, many do not invest the same amount of time at renewal shopping around and will renew with their current lender’s less favourable rate offer.
Many feel their loyalty to a lender will be enough for their lender to proactively offer the best rate and others do not have time or the interest to start the rate shopping process again at each renewal. Lenders can take advantage of this at renewal. Lenders know that 80% of people simply sign and return the renewal offer and documents.
The Bank of Canada confirmed that those who switch lenders at renewal or those who renewal with a broker’s series save more than those who renew directly with their lender.
Each point saved on the rate counts. A 0.2% savings on a rate, on a $300,000 mortgage, will save you over $2630 over the next 5-year term for example.
Learn more: 5 Year Fixed Rate Mortgage
When you are up for renewal you have two main options:
One: Wait for the lender’s renewal offer and complete the renewal with your current lender. This is not advised and may be the most costly option.
Two: Shop around options once you are within 120 to find the best rate available and hold it for the 120 days. Once you receive your renewal notice from your current lender you can then compare their offer to the rate you have held. An extra plus to this option is that if rates increase during the 120 day period before your lender sends you your renewal notice, you are protected against any increase. Also, if rates decrease during this time, you are still able to take advantage of the rate decrease.
Many times in a rising rate environment, a client will receive their renewal notice from their lender just in advance of their renewal date which unfortunately means the rate offered will be higher then if it was send out months in advance.
I hear from many clients that their lender has called them with a ‘limited time offer’ that needs to be accepted right away. Also they will need you to renew early to take advantage of the offer. This sadly limits your time to shop around, the offer is usually not very favourable compared to mortgage broker’s best options and if you have a lower rate that you can still can hold onto for a few months before you renew, you will lose those months with the lower rate, which can add up.
Banks and lenders have many ways to help boost profits for their shareholders. Unfortunately the billions of dollars of profits banks make each year is made up of the fees and rates we pay. I look forward to keeping more of that money in your pocket for your mortgage renewal, not in theirs.
I invite you to contact me anytime if you would like to learn more about a mortgage renewal or need assistance in finding the best mortgage renewal options. Also, for those looking to refinance, mortgage renewal time is a great time to review refinancing options.