Mortgage Renewal in Ontario? Here's What You Need to Know
I recently checked the most-searched mortgage topics on Google, and one of the top results was "mortgage renewal." I t’s a huge topic for a reason. It’s a critical financial milestone for Canadian homeowners. Many people are likely searching for answers to questions like, "What is mortgage renewal?" "Should I renew with my current bank?" or "How to get the best mortgage renewal rate?"
I wrote this article to give you the information you need to make the right decision for your home and your financial future.
The Most Common Mistake with a Mortgage Renewal
Your mortgage lender will typically send you a renewal statement 120 days before your mortgage maturity date. This pre-filled form makes it incredibly easy to simply sign and send back. But here’s a critical piece of advice: That offer isn’t always the best rate you can get. Your current lender is counting on you taking the path of least resistance. They know it's easy and convenient to renew with them, so they may not be offering their most competitive rates.
Why a Mortgage Renewal is a Fresh Start
Think of your mortgage renewal not as a simple administrative task, but as an opportunity to secure a new mortgage that better fits your current financial situation. Since you first got your mortgage, your income, family situation, and financial goals may have changed. This is your chance to re-evaluate and optimize your home loan.
Here’s a checklist of key things to consider before you renew:
Your Financial Goals: Do you want to pay off your mortgage faster? Consider a shorter term or a fixed rate with higher prepayment privileges. Do you need to consolidate high-interest debt? A mortgage renewal is a perfect time to explore a refinance.
Mortgage Rate Options: Understand the difference between fixed-rate and variable-rate mortgages. The right choice depends on your risk tolerance and market outlook. A fixed rate offers stability, while a variable rate can offer lower interest costs if rates fall.
The Power of Shopping Around: This is the most important step. Don't accept the first offer. Compare rates from your current bank with offers from other lenders, including other banks, credit unions, and alternative lenders. This competitive shopping process is where you can save thousands of dollars over your next term.
Hidden Fees and Prepayment Penalties: Always read the fine print. Look for prepayment penalties, fees for increasing your payment, or other restrictions. These can limit your financial flexibility down the road.
Mortgage Broker Advantage: Working with a mortgage broker can save you time and money. We have access to a wide range of lenders and can negotiate on your behalf to secure the best mortgage renewal rates and terms. We are experts at mortgage renewals in Canada and can help you navigate this complex process.
The Mortgage Stress Test: If you decide to switch lenders, you will need to re-qualify and undergo the mortgage stress test. This is an important factor to consider, especially if your financial situation has changed since you first got your mortgage.
Refinancing: More Than Just a Rate Change
Your mortgage renewal is a perfect time to consider a complete mortgage overhaul, also known as refinancing. Unlike a simple renewal, which just extends your existing mortgage with the same lender, refinancing allows you to break your current mortgage and replace it with a brand new one.
This new mortgage can be with your current lender or a different one, and it's your chance to unlock the value you've built in your home.
Key Reasons to Refinance Your Mortgage:
1. To Access Your Home's Equity
This is one of the most common and powerful reasons to refinance. Over time, as you pay down your mortgage and your home's value increases, you build up equity. A refinance allows you to borrow against that equity, giving you a lump sum of cash. Common uses for this "cash-out refinance" include:
Home Renovations: Funding a major kitchen or bathroom remodel, a new basement, or a home addition can significantly increase your property's value. In fact, many people are looking at this option as a way to create an accessory dwelling unit or a secondary suite. To learn more about how renovations can be a powerful financial tool, check out my recent blog on Ontario’s Single-Family Rentals.
Debt Consolidation: High-interest debt from credit cards or personal loans can be crippling. By refinancing, you can roll that debt into your mortgage, which typically has a much lower interest rate. This can simplify your finances and save you thousands of dollars in interest charges.
Large Purchases or Expenses: Whether it's paying for a child's education, financing a new car, or covering a significant medical expense, refinancing can provide the funds you need at a much lower cost than other forms of borrowing.
Investment Opportunities: Some people use their home's equity to make a down payment on a second property, a rental property, or to invest in the stock market.
2. To Get a Better Interest Rate
Even if your mortgage isn't up for renewal, a significant drop in market interest rates might make it worthwhile to break your mortgage and refinance. By securing a lower rate, you can:
Lower Your Monthly Payments: This frees up cash flow in your budget for other goals, like saving or paying down other debts.
Save Money Over the Long Term: A lower interest rate means you pay less in interest over the life of your mortgage, leading to substantial savings.
3. To Change Your Mortgage Terms
Refinancing gives you the flexibility to adjust your mortgage to better fit your life.
Shorten Your Amortization Period: If your income has increased and you want to be mortgage-free sooner, you can refinance to a shorter amortization. This will increase your monthly payments but will save you a massive amount in interest over the long run.
Lengthen Your Amortization Period: If your financial situation has changed and you need more cash flow, you can refinance to a longer amortization. This will lower your monthly payments, making your mortgage more manageable.
Switch Mortgage Types: Are you in a fixed-rate mortgage and feel confident that rates are going to drop? Or are you in a variable-rate mortgage and want the security of a fixed payment? Refinancing allows you to switch between fixed-rate and variable-rate mortgages.
4. To Remove a Mortgage Insurer
If you had a high-ratio mortgage (less than 20% down payment), you are paying for mortgage default insurance. Once you have built up more than 20% equity in your home, refinancing allows you to remove this insurance premium, saving you a portion of your monthly payment.
Key Takeaways for Your Mortgage Renewal
Don’t let your mortgage renewal be a passive event. By being proactive and shopping for the best rate, you can take control of your financial future. Remember, your current lender's renewal offer is just a starting point.
A well-planned mortgage renewal can save you money, provide more flexibility, and get you closer to being mortgage-free.
Ready to take the next step? Contact me today for a no-obligation consultation on your mortgage renewal and refinance options.