Renewing Your Mortgage: Save by Shopping Around

As a homeowner, understanding the mortgage renewal process is crucial since you will likely engage in this practice multiple times over the life of your mortgage. Much like your initial mortgage, there are various options accessible during the renewal period that can aid in saving you money.

Typically, securing approval during your renewal phase is almost a given, as lenders do not require you to requalify. However, it’s wise to refrain from hastily accepting the terms of your new mortgage, as you may discover superior alternatives.

View the mortgage renewal phase as an opportunity to evaluate different mortgage types, explore additional payment options, and find the most favorable interest rates available.

What is Mortgage Renewal?

When you initially take out a mortgage, you enter into a contract with your lender for a specified duration, known as your mortgage term. These terms can span from a few months to several years, though many individuals opt for a 5-year term.

Most homeowners will have a mortgage amortization period of 25 years, necessitating multiple mortgage terms to clear the total balance. Consequently, upon reaching the end of your current term, renewal for a new term is essential if you wish to continue repaying your mortgage. Alternatively, you may choose to discharge your mortgage with a lump sum payment.

One notable point is that you have the option to renew your mortgage with your existing lender or switch to a different lender if you find a more attractive offer.

Understanding the Mortgage Renewal Statement

Several weeks before your term concludes, your lender will send you a document known as a mortgage renewal statement. This statement, which may be received through traditional mail or electronically if previously agreed upon, will be sent at least 21 days prior to the end of your existing mortgage term.

The renewal statement will provide the following details:

• The remaining principal balance as of the renewal date
• The current interest rate being offered
• The type of mortgage in question
• The frequency of payments
• The term of the mortgage
• Any applicable charges or fees

At this juncture, you can either agree to the renewal terms or negotiate for a different set of conditions, or even seek alternatives. If you decide to accept the renewal terms as laid out in your statement, there are typically no additional requirements to meet. This can be beneficial for individuals experiencing job loss or income fluctuations, as you may be granted a mortgage similar to your current one at prevailing interest rates.

This scenario is advantageous for those who have entered new employment or transitioned into freelance work, as they may lack the official income documentation often needed to secure a new mortgage, despite possessing sufficient savings.

Steps for Renewing a Mortgage

Once your current mortgage term concludes, it’s prudent to reassess your needs before committing to a new mortgage product. Here are several factors to contemplate prior to signing a new term:

• Your current budget – are you capable of increasing payments to expedite mortgage repayment and thus reduce interest expenses?
• Would you prefer to adjust your payment frequency?
• Is there a desire to consolidate any high-interest debts into your mortgage?
• Do you require refinancing or a home equity line of credit (HELOC)?
• Is optional life/critical illness/disability/employment insurance necessary?
• Are you satisfied with the service provided by your current lender?

If you decide to accept the agreement for a new mortgage term with your existing lender, feel free to proceed. However, it may be beneficial to explore other options as different lenders might offer lower rates.

When considering other lenders, note that they will need to assess your current situation for qualifying purposes. This includes evaluating your employment status, debt ratios, and credit score. Additionally, they may require further documentation, such as a home appraisal.

If your circumstances pose challenges for reapplying for a new mortgage, accepting the terms in your renewal statement might be the most sensible choice. Conversely, if you are in a strong financial position, shopping around could yield better results.

Negotiating for a Better Rate

If you are content with your current lender, take the opportunity to negotiate for a more favorable interest rate. Many financial institutions possess some level of flexibility, and you might qualify for a reduced rate that undercuts what is presented in your renewal letter. Discuss your rate options with your lender and bring evidence of competitive offers from other lenders or mortgage brokers.

Keep in mind: some mortgage renewals occur automatically. Therefore, check your renewal statement, and if you have no intention of moving forward under the outlined terms, reach out to your lender promptly.

Exploring Other Options

Should your lender be unable to provide a more attractive rate, or if you are dissatisfied with the service you currently receive, it may be time to consider switching lenders. Begin your research a few months in advance, rather than waiting until just 21 days before your renewal date, to allow yourself ample time to find better rates and options.

Finding the right mortgage can take considerable time, as variable-rate mortgages fluctuate regularly; therefore, consistent monitoring of available offers is advisable.

Switching Mortgage Lenders

If you opt to seek out new lenders, employing the services of a mortgage broker can be beneficial. They can aid you in locating better rates and products that fit your specifications while also addressing any inquiries regarding the mortgage renewal process.

Although transitioning between lenders can lead to reduced interest rates, be aware of any associated costs, such as prepayment penalties and legal fees.

The Application Process

Switching lenders entails submitting a new mortgage application, similar to when you first sought mortgage approval. Be informed that each lender maintains distinct approval criteria, and you will need to successfully pass the mortgage stress test again.

Considering Costs

Another important aspect to keep in mind when switching lenders involve potential additional costs. These may include discharge fees, registration and transfer fees, assignment fees, notary or legal fees, and administrative fees, in addition to the home appraisal required by your new lender. Your new lender may cover some of these costs to entice you to make the switch, so inquire about it.

Mortgage Loan Insurance Premiums

When switching lenders, you may also need to be cautious about mortgage loan insurance premiums, especially if:

• Your loan amount is increased
• You extend the amortization period

If you already have mortgage loan insurance, inform your new lender. They might be able to assist you in avoiding duplicate premiums.

Should You Consider Switching Lenders?

In general, do not simply accept the terms provided in your mortgage statement. Lenders do not expect you to do so. Utilize this time to explore the market for potentially advantageous fixed or variable-rate mortgages. If you uncover a better deal, switching could be worthwhile.

Upon completing your term, you will not incur any prepayment penalties. Should you choose to engage with a new lender, they will pay off the balance owed to the previous lender, and your mortgage will then be recorded under the new lender. Future payments will be directed to them. Although the process may require some effort on your part and may involve some legal fees, the long-term savings can be significant.

Investing a few moments in search of the best rates could save you a substantial amount, making it a worthwhile endeavor to consider switching lenders.