Save thousands by simply renewing with a cheaper lender!
Don't sign the renewal letter from your current bank without shopping for the best rate and terms!
You are not tied to your current bank - you can renew your mortgage anywhere. If the lender you are currently with is not offering you a competitive rate, you can switch out very easily. There are tens of lenders in Canada, so renewal with your current bank without market research, performed for you by an agent, means choosing the mortgage product randomly. Your lender is interested in seeing you come back, but it's important to investigate your options and make sure you are getting the best possible deal. So, let's talk before you "sign here and here" with your lender - shop around, get a second quote, be sure.
Don't renew with your current bank with eyes closed!
Mortgage Renewal sounds easy - all it takes is signing the renewal letter from your current lender, right? Wrong. Many people stayed with their current lender after mortgage term maturity and did not negotiate (signing renewal agreement at whatever rate the lender quoted; sadly, that's exactly what lenders count on), and the usual result is a higher rate and not a best mortgage they were able to get.
Many people make this simple yet expensive mistake because they don't know that it's possible to switch to another lender if it offers a better product. Others don't look for the best rate and conditions existing on market at that moment because they believe it is too time consuming. Ok, it would be if mortgage agents would not exist. When you receive the mortgage renewal form your bank, don't sign it without knowing all your options with a help of a mortgage agent who will conduct market research for you!
Several banks simply auto-renew you at posted rates versus fully discounted rates, which can be a difference of hundreds of dollars a month! Please read the following article in "The Star": Loyalty doesn't pay when it comes to mortgage renewals. A Bank of Canada study found that loyal bank customers don't get best deal when they renew mortgage. People who switch and first-time buyers do. For the bank you swhich to, you will be "a new customer". Let's call a spade a spade - by using lower renewal rate, banks endeavour to entice you away.
Refinance with debt consolidation during renewal
A mortgage switch is quite simple to do. A switch is when you take the exact amortization period remaining and the exact amount owed and simply “switch” to another lender offering you a better rate and terms. However, you can change the amortization period and/or amount of the mortgage. If there is any change to them, it is then considered a mortgage refinance. Changes in other features (for example, switching between variable and fixed rates, or changing payments frequency) are not considered a refinance.
Practically, that means, that mortgage renewal is also an important opportunity to roll your high-interest debt (such as credit cards and lines of credit) into your mortgage (which is a very low-interest debt - mortgage rates are incredibly low compared to rates of car loans, lines of credit and, especially, credit cards) to get one lower payment, boost your cash flow, and save on interest costs. For example: if the renewed mortgage is 300K, and you have a 10K credit card debt, and you still owe 20K for your car, then the new mortgage will be 330K.
Many people refinance the mortgage with debt consolidation before the end of the current term, paying a penalty for premature termination (if the penalty is less than the total burden of interest payments on debt). If it's a mortgage renewal time, then no penalty is paid. You don't want to miss an opportunity that happens only once in 5 years!
Renewal is a good time to take some equity out for renovations, or using as a down payment buying a investment property.
Find more details about refinancing here.
It's a matter of the lowest rate, but not only...
By the time your mortgage comes up for renewal, you most likely are in a different financial position than when you first obtained the loan. Then this product could be the best for you, but not necessarily today, after 5 years. Renewal time is a valuable opportunity to review your existing financial situation and get not only a competitive interest rate, but also a plan that better fits your current needs. I will talk about your interest rate type preferences, your future plans (home renovations, a move, etc.) and more. You can call me whenever you're ready.
Early mortgage renewal: A gift horse to examine carefully
The Globe and Mail:
Lenders have a book of tricks to keep you tied to them for as long as possible. One of their strategies is the "early mortgage renewal."
An early renewal offer can seem like a gift horse, and often it is. But it's a gift horse that you'll want to look squarely in the mouth. The reason: Early mortgage renewals are meant to keep you from comparison shopping.
If a lender can entice you before you talk to their competition, its chances of retaining you as a customer rise dramatically. That's why banks are increasingly asking people to renew more than 120 days before their maturity (renewal) date. This prevents people from securing long-term rate guarantees that are lower than the incumbent lender's renewal offer.
Every year, hundreds of thousands of homeowners renew early. This Globe and Mail story from Rob Carrick cites data that six in 10 borrowers renew before their maturity date.
Special to The Globe and Mail
Renewal time is an opportunity to review your current financial situation - and my goal is to make sure you select the right mortgage options for your particular circumstances. I will talk about your interest rate preferences, your future plans (home renovations, a move, etc.) and more. You can call me whenever you're ready.