Written by: Realtor.ca Team

Many Canadian mortgage holders renew without asking any questions—often receiving a mortgage product that may not suit their current needs. After all, life may look different than it did when you first got your mortgage and your priorities may have shifted, too. Do yourself a favour, and don’t sign a renewal letter without doing your due diligence.   Along with understanding your financial situation, here’s what else you need to consider before renewing your mortgage.  

Planning your mortgage renewal in advance can pay off

If you renew your mortgage early, you’ll be able to lock in at current interest rates sooner, which can protect you against future potential rate fluctuations. Today’s economic environment is uncertain. Forecasting what comes next is challenging, given disruption in trade, sticky inflation and geopolitical tensions. This makes future interest rate movements difficult to predict, but one thing experts seem to agree on is this: Canada is not likely to see rates like those of 2020 and 2021 anytime soon. It’s worth noting, too, that even if the Bank of Canada overnight rate falls, it doesn’t mean that fixed mortgage rates will also go down. This is because fixed mortgage rates don’t always mirror Bank of Canada changes – rather, they are influenced by bond yields and lender expectations of where rates are headed in the future. With the strain of ongoing changing economic conditions, locking in your mortgage renewal early may provide some peace of mind as you’ll know what your payments will be in the future. Taking some time to talk through your mortgage renewal options with a Mortgage Advisor now can help you make informed choices, rather than feeling rushed when your term comes to an end.  

Do your research when renewing your mortgage

Leading up to your renewal date, it’s important to do your research on products, features, interest rates, and housing market trends. It’s also recommended to shop around and investigate the different lenders available to you. The Financial Consumer Agency of Canada website is a great starting point when it comes to research, offering a wealth of up-to-date resources including answers to frequently asked questions about mortgage renewals. Your REALTOR® is another excellent resource to tap into for advice on what to consider when renewing your mortgage. “Renewal is also the right moment to look at your mortgage features,” says Erica Aceti, Mortgage Specialist at RBC. “Prepayment privileges, payment flexibility, amortization length. These levers can save you thousands over the life of your mortgage. A longer amortization frees up monthly cash flow; a shorter one gets you mortgage-free faster. It’s worth knowing what you have access to, and making sure it still fits where you are today.”  

Request a lower rate when it’s time to renew your mortgage

A simple yet often overlooked consideration when renewing your mortgage is to negotiate with your current lender for a lower interest rate. Despite what’s outlined in your renewal letter—which must be sent to you at least 21 days before your renewal date—you may qualify for a discount. You won’t know if you don’t ask!

When it comes to negotiating your renewal, competing offers can help you secure a better rate. You may also be able to negotiate a better rate by consolidating more products with your

lender.

Consider this a fresh start in your homeownership journey

It’s likely a lot has changed in your life since your initial mortgage, or significant events have since occurred that have an effect on the marketplace. For example, you or your spouse may have switched careers, your children may no longer live at home, or interest rates may have changed due to outside factors. One helpful way to assess your current situation is by using a mortgage payment calculator and inputting the details that may have changed since your current mortgage.

 

Look into potential savings opportunities

Lenders are constantly introducing new mortgage products and features, which means you might have access to potential savings. Based on your home’s current value, you may want to consider enrolling in products such as RBC’s Homeline Plan, which offers a great way to access the equity in your home, when needed.

Are you considering building instead of buying? Here’s what you need to know about how to get a construction mortgage loan to build your dream home.

You don’t have to renew your mortgage with the same lender

Once your mortgage term is up, you’re not required to remain with the original lender. If you’re offered a better rate or improved terms and conditions from a different bank or mortgage broker, you’re free to make the switch. Of course, you’ll need to reapply and supply all the paperwork required for a new application if you go this route. This means proving your income and having your credit checked, so it’s important to weigh your options carefully before making the decision to switch lenders.

It’s recommended to start exploring your options well in advance of your renewal date—if you wait until you receive the renewal letter from your lender, you may miss out on the best offer for your needs.

You can refinance your mortgage

You can save thousands of dollars at the time of your renewal if you’re considering refinancing and taking equity out of your home. When your mortgage term expires, you aren’t subject to early payment penalties, so if you’re thinking about taking advantage of investment opportunities, renovating your property, consolidating debt or paying for your child’s education, your renewal date is a good time to do so.

“A lot of clients don’t realize how much equity they’ve built up, or what they could do with it,” says Aceti. “Renewal is the ideal time to put that equity to work, whether that’s paying down other high interest debt, funding a renovation, or investing in the future. It’s important for clients to know their options.”  

Don’t get intimidated by fees

If you do choose to switch lenders when renewing your mortgage, you may be subject to additional fees such as:

• new lender set-up fees (i.e. the cost to discharge your previous mortgage and register the new one);
• a transferal or reassignment fee from your current lender; or
• if necessary, the cost of an appraisal fee to confirm your property’s current value.

Other fees to consider are mortgage loan insurance premiums and collateral charges on your initial mortgage. To avoid paying a premium twice, be sure to inform your new lender you currently hold mortgage loan insurance and provide them with your certificate number. If you want to switch lenders and your mortgage includes collateral charges, you will likely have to pay a fee before registering your mortgage with a new lender. Removing the charge completely requires full repayment or transferring all loan agreements secured by the collateral charge—such as lines of credit or car loans—to the new lender. Despite these additional fees, they are typically minimal when you compare them to how much you’ll save in interest long-term. RBC, for instance, makes switching easy and will take care of all the legwork related to switching, and cover up to $1,100 in switch fees. Don’t be afraid to ask your new lender if they’re willing to include discharge fees into the new mortgage—they may even cover part or all the fees to earn your business, but you won’t know if you don’t ask.

Are you considering breaking your fixed-term mortgage contract? Here’s everything you need to know, including associated penalties as well as the advantages. 

The key takeaway here: take control of your renewal. Remember, resting on your laurels can cost you thousands of dollars when it comes to renewing your mortgage. Don’t wait for your renewal letter and don’t let your lender automatically renew without doing your due diligence. Be proactive and take action months in advance of your renewal date.