With 80% of mortgages outstanding as of March 2022 and set for renewal by 2024, homeowners are at a crucial point in their financial journey. Monthly payments might increase, so having the right resources is essential to make informed decisions and ensure financial stability.
We sat down recently with Bruk Telahun, CEO and Principal Broker of Best Mortgage Solutions, to bring you key tips and tools to navigate mortgage renewals with confidence.
What is a mortgage renewal?
A mortgage renewal happens when your current mortgage term ends, and you can choose to renew with the same lender or switch to a new one. “It’s like renegotiating your mortgage agreement,” says Telahun. “You review details like the interest rate and how long you’ll have the mortgage, and then decide whether to stick with your current lender or find a better deal somewhere else. This is your chance to adjust your mortgage to better suit your finances or take advantage of new offers in the market.”
Typically, mortgage renewals come up every few years, usually at the end of your mortgage term. Terms can be anywhere from one to 10 years, but five years is common.
Renewal periods often start a few months before your term ends. During this time, you can talk with your mortgage broker about new terms to check out other lenders if you’re thinking of switching. As Telahun notes, “It’s a good idea to start thinking about your renewal well ahead of time so you have a chance to explore your options and make the best choice for your money.”
Mortgage renewal calculator and other tools for homeowners
Here are a few tools to help you navigate the mortgage renewal process and understand the costs of owning a property.
What are the options to renew a mortgage?
There are several options to consider when renewing your mortgage:
Renew with your current lender
You can choose to stay with your current bank or mortgage lender and renew your mortgage under new terms that you agree upon together.
For example, John has had a mortgage with ABC Bank for the past five years. As his term comes to an end, he decides to renew his mortgage with ABC Bank. They agree on a new five-year term with a slightly lower interest rate than before, which helps John save on his monthly payments.
Switch to a new lender
You also have the option to shop around and switch to a different bank or lender that might offer better terms, such as a lower interest rate or different repayment options.
For example, Sarah’s mortgage term with XYZ Bank is ending soon. She shops around and discovers that DEF Credit Union is offering a lower interest rate and fewer fees compared to XYZ Bank. Sarah decides to switch her mortgage to DEF Credit Union, which results in significant savings over the term of her mortgage.
Adjust your mortgage terms
During the renewal period, you can negotiate changes to your mortgage terms, like adjusting the length of your mortgage, changing from a variable to a fixed interest rate, or modifying your payment schedule to better fit your financial situation.
For example, Mike’s current mortgage has a variable interest rate, but he wants more stability in his payments. As his renewal approaches, he negotiates with his lender to switch from a variable to a fixed interest rate. This change gives Mike peace of mind knowing that his monthly payments will remain consistent regardless of interest rate fluctuations.
“These options give you the chance to find the best deal and terms that suit your current financial needs and goals,” says Telahun. “It’s important to explore these options and consider what works best for you before renewing your mortgage.”
Deciding which mortgage renewal option is right for you
Deciding which mortgage renewal option is right for you depends on your individual financial situation, goals, and preferences. Here are some steps to help you make that decision:
- Review your current mortgage: Understand your current interest rate, monthly payments, and any upcoming changes from your current lender.
- Consider your goals: Decide what you want from your mortgage renewal: lower payments, stability in payments, paying off your mortgage faster, or accessing equity in your home.
- Compare offers: Look at renewal offers from your current lender and explore options from other lenders to find the best deal on interest rates, fees, and repayment flexibility.
- Calculate costs: Use online calculators or ask lenders for estimates on how each option will affect your monthly budget and total costs over time.
- Assess risks: Understand the risks of switching to a different type of mortgage (like from fixed to variable rates) and how it aligns with your comfort level for potential rate changes.
- Seek advice: Consult with mortgage brokers for personalized guidance based on your financial situation and goals.
- Fit into your plan: Ensure your mortgage choice supports your overall financial plan, including savings, investments, and future financial goals.
By following these steps, you can make a clearer decision about which mortgage renewal option best meets your needs and helps you achieve your financial objectives.
Our final thoughts
Mortgage renewals can be complex to navigate, but with the right tools, you can understand how much you can afford and ensure you’re planning wisely. Always seek advice from a mortgage professional to help guide you through the mortgage renewal process. Learn more about how to manage your rental property’s finances with our resources.
