Most of us have wished we had a reset button for all mortgage loans. Pressing the button would have let you choose a better mortgage lender who can offer a new interest rate and term. In real-life, a button like this does not exist. However, a mortgage renewal might grant some of these wishes.
Most Canadians apply for mortgage renewal a couple of weeks before their current mortgage term. The most popular choice is for five years. However, the duration of the term can range somewhere between 1 year to 10 years. If you have not completed the full payment, you must renew your mortgage at the end of every term. You have a maximum of 25 to 30 years (amortization period) to pay off the entire sum.
The mortgage renewal term is the best time to go through the various mortgage lenders in the market and get a better interest rate that will suit your current financial needs. This article will discuss some crucial things you must remember while paying your mortgage early. For the best mortgage rates, you can visit this site.
Things to consider before paying off the mortgage early
1. Carefully evaluate your financial goals
Your financial needs and plans might have changed since you first applied for the mortgage. Some of the critical points to consider while mortgage renewal is:
Your term length
Depending on your current financial state and plans, a new term plan might suit you better. If you are not expecting a significant lifestyle change, a longer-term will be beneficial as it will help you keep a reasonable interest rate for a longer time. However, if you want better flexibility, you can always apply for the short term.
Fixed or variable interest rate
As the name suggests, fixed interest rates stay the same throughout the tenure. However, variable interest rates fluctuate with your lender’s prime rate. So, if the prime rate drops, you will pay a lower interest rate and vice-versa.
Thus, if you want stability in your monthly instalments, you must always opt for fixed interest rates. However, a variable interest rate is ideal if you are willing to take some risk.
You also need to consider the service your current lender is providing. If you are unhappy with the customer service, then this renewal time is the best opportunity to switch to another lender that better suits your requirements.
2. Research for better options
Your current mortgage provider’s renewal offer might seem tempting. Still, it is always advised that you compare the other providers and mortgage brokers to see the available options in the market. Additionally, you must begin shopping or going through the different options approximately four months before the renewal date to give yourself some time to shortlist and decide which provider is your best choice.
There are no penalty charges for switching providers. However, you might need to pay some fees. In most cases, the new provider will be covering this fee for you. You also need to requalify, which is not a big deal. Actually, qualifying for a mortgage with a new provider is comparatively easier as long as you are employed and your income has not decreased.
You won’t be eligible for a reasonable interest rate if, by any chance, your financial situation has deteriorated. In such a scenario, it is advised that you renew your tenure with the existing provider.
3. Do not accept the renewal offer immediately
Your current mortgage broker will ask you to renew early, approximately 80 to 120 days before your end date. Some brokers also send renewal letters or slips six months to 4 months before the renewal date. On this slip, you will find a fresh interest rate that might be comparatively lower than your current interest rate. However, this is not the best rate you are eligible for.
You must remember that your current lender will, in most cases, hold the best interest rate applicable for you until the last day of the renewal date so you can shop around. However, if you don’t find something better than what your present lender offers, you can always accept their offer before the last date.
4. Consider changing landers
Changing your mortgage broker is, in most cases, beneficial as you might get a better rate. Before switching to new lenders, you have to consider two important points:
Most mortgage fees can be waived, or your money lender might cover it if you ask them.
Do not worry about requalifying
Over time most people’s monthly income increases and the mortgage balance will also decrease as you regularly make payments. So, your financial position at the renewal time will be better than when you applied for your mortgage.
So simply speaking, qualifying for a mortgage will not be an issue if your employment and financial situations have not been negatively affected.
5. Always use a mortgage renewal rate hold
A rate hold can be beneficial and lets you secure a specific interest rate even before the renewal date. The broker or the financial institution will allow you to place the rate hold for about 90 to 160 days. In this duration, you can compare various rates several months before the renewal date by helping you find the best deal in the market.
6. Try switching to a broker
A recent study by the Bank of Canada has shown that when an applicant uses a broker for a mortgage, there is a more significant possibility of getting a lower mortgage rate than big financial institutions and banks.
This is simply because mortgage brokers are partners with various lenders and can offer more and better quotations.
7. Refinancing your mortgage
If you require access to a part of your home equity, consolidate your debt, or make changes to your original mortgage, you can try refinancing.
The main penalty charge associated with refinancing is not valid when you are nearing the renewal date as you are not breaking your mortgage tenure early. For example, if you have a pending credit card or car loan with a higher interest rate, you can always pay them off with a mortgage that has a lower interest rate.
It is always recommended that you use your mortgage renewal time to review your financial planning and look for better opportunities to consolidate any remaining consumer debts.
Mortgage renewal allows you to choose a mortgage that suits your financial requirements and situations better. It is the best time to go through the market and look for lower interest rates. Additionally, you might consider taking this time to refinance your mortgage to pay off any pending loans or consolidate your debt.