When you first obtain a mortgage, you and your lender will agree on the mortgage’s term – the duration of the mortgage. This can be any length of time agreed upon by you and your lender, but mortgages in Canada typically span between five and ten years. When this period of time – however long it is – is up, chances are that you will need to renew your mortgage for another term. This is a part of the process that many home buyers don’t think about until the time comes, and while that’s understandable it is also not exactly wise. It’s important to know what considerations you need to make when renewing your mortgage, preferably before you need to take action.
Fortunately, lenders will typically send a notice to their clients three weeks or so ahead of time, so that they are not taken by surprise when it comes time to renew. Still, it’s important to keep an eye toward the future and on these factors that will contribute to the renewal process.
Does Your Current Lender Offer the Best Rate?
Most Canadians renew their mortgages with their existing lender without even considering the option of shopping around for a different rate from another lender. In truth, the rate that your current lender is providing you with might not be the best rate possible. If your financial situation – namely your credit report and credit score – has improved, you may qualify for lower rates than you did at the time of taking out your previous mortgage. Don’t be afraid to shop around. Just make sure that you make your final decision before the renewal date.
Broker vs Bank
Some home buyers will opt to renew their mortgage with a broker rather than a big bank (or “type A”) lender. This can be the most frugal move due to the fact that mortgage brokers have access to a number of financial institutions and can produce a number of quotes. It is very possible to get a lower interest rate this way, so definitely put your local mortgage broker onto your list of considerations.
The Fine Print is Critical
The interest rate on your mortgage is not the only factor to consider in the renewal process. Each lender will provide different terms with each mortgage that they facilitate, meaning that you need to read the fine print. Make sure that you understand what actions can result in penalties and expensive fees. Make sure that you have the option to pay extra on your mortgage if that is a priority to you.
There are many considerations that one must take into account when renewing their mortgage. This process, after all, is the drafting of a new mortgage agreement. You can’t expect it to be entirely too simple. However, when you slow down and take the time to shop around and assess the terms of your mortgage renewal options, you will find yourself the best possible outcome.