Will My Mortgage Renew Automatically?
As you approach the end of your first mortgage term, a common question often arises: Will my mortgage renew automatically? The anticipation and uncertainty surrounding this pivotal moment in your mortgage journey can be daunting. Understanding the intricate workings of mortgage renewal is crucial to avoid potential pitfalls and ensure a smooth transition to the next phase of homeownership. In this guide, we delve into the nuances of mortgage renewal in Ontario, shedding light on whether mortgages automatically renew, the considerations involved, and what happens if your lender is not willing to renew.
What does it mean when your mortgage is up for renewal?
Mortgage renewal is the process of renegotiating and extending your existing home loan agreement with your lender, typically at the end of your “mortgage term.” The average term-length in Canada is 5-years, and most borrowers renew after multiple terms throughout a 30-year amortization.
A few weeks before your mortgage renewal date arrives, your lender will typically offer you renewal terms that you may then choose to accept, negotiate, or decline. If you do not take action, your mortgage will usually renew automatically or default, depending on your current set up and financial standing.
Depending on the type of mortgage lender you go with, you may be able to do a straight renewal without incurring any additional costs. This is the typical mortgage renewal scenario when renewing your mortgage through a bank. If you took out your mortgage through a private lender or an alternative institutional lender such as a trust company, you may be required to pay a renewal fee.
There's no one-size-fits-all process for mortgage renewal. Although most mortgage renewals involve a continuation of existing terms, it is always possible for both you or your lender to negotiate the conditions of the contract before it is signed. It is also possible to instead consider other lenders, and choose not to renew your mortgage at all. Before deciding to renew, it is important to ensure that you are 100% satisfied with your current lender.
In some cases, a lender might not be willing to renew your mortgage at all. This situation might occur if there have been changes in your financial circumstances, such as a decrease in income or credit issues. If your lender refuses to renew, you'll need to find an alternative lender before your current mortgage term ends. Failing to do so might result in the mortgage being called due, which means you'll have to pay off the remaining balance or face foreclosure.
To prevent issues with mortgage renewal, it's very important to maintain good communication with your lender, keep your finances in good shape, and start exploring options for renewal well before the term expires.
What are the pros and cons of an automatic mortgage renewal?
Deciding whether or not to renew your mortgage automatically can be difficult—especially if you do not understand the implications. Comparing the pros and cons of this process can be a great way to assess which option is best for you. Automatic mortgage renewal can come with many advantages:
Save money by avoiding additional new broker and lender fees
If you are happy with your current mortgage lender and the renewal terms that they present to you, then allowing your mortgage to renew automatically can save you time and money. If you are in a private mortgage, often times the renewal fee is significantly lower than the broker and lender fee that you might need to pay when seeking to switch your mortgage to another private lender. This may not be the case if you need to refinance and take out additional equity from your home, or if you can now qualify for a better mortgage rate with a better lender such as a trust company, credit union, or even a bank.
Save time by allowing your mortgage to renew automatically
When it comes to a renewing a bank mortgage, if the new mortgage interest rates and terms are acceptable to you, then you might choose to forgo having to go through the whole mortgage application process again and just stay with what you have.
You don’t need to requalify at the current stress test
By renewing your mortgage automatically, you will not have to requalify for the newly renewed mortgage. By avoiding the need to requalify, you won’t be subjected to the newly increased mortgage stress test .
While the pros of automatic mortgage renewal may seem enticing, it is also important to remember the potential drawbacks involved:
You might be overpaying
If you do not review your mortgage renewal offer carefully, and if you choose not to explore other options, then you may end up getting stuck in a mortgage that carries a higher interest rate and unnecessary renewal fees that you may have been able to avoid. If you take your mortgage renewal offer to a professional and knowledgeable mortgage broker, then the broker will analyze your current financial and credit situation and try to find a better mortgage option for you. If they fail to find a better alternative, then you can always renew with your current lender. However, in many cases a good mortgage broker will have access to a plethora of lenders and will more often than not be able to find you an even better offer someplace else.
It’s important to take into account various things to consider when your mortgage comes up for renewal.
You might be missing out on an opportunity to consolidate other debts
If you have high-interest credit card debt, car financing, student loans, and high interest credit lines, you might be able to save hundreds and even thousands of dollars a month by consolidating your high interest debt into a low interest mortgage. By tapping into additional home equity that may have become available to you over the years, you can roll up and consolidate your debt into one lower monthly payment. Imagine what you might be able to do with the additional cashflow.
You might miss an opportunity to pay down your mortgage faster
If you were able to either save up extra money or came into a lump sum of money during your original mortgage term, by allowing your mortgage to renew automatically, you might be missing out on the chance to make a lump sum payment towards your principal mortgage balance. By paying down your principal mortgage balance, you may have an opportunity to drastically lower your monthly payments, and in some cases either qualify with a better lender or qualify for a lower interest rate on your mortgage.
You may not have the chance to switch your rate type – fixed vs variable
When reviewing a new mortgage term, depending on what’s happening in the economy, you might be better off switching from a variable rate mortgage to a fixed rate mortgage renewal , or vice-versa. In the case of an automatic mortgage renewal, that option might not be available to you.
Here’s a table showcasing some of the various pros and cons to allowing your mortgage to renew automatically.
| Pros | Cons |
|---|---|
| Tends to be quicker than qualifying for a new mortgage from a different lender | You might miss out on lower interest rates |
| Can be cheaper by avoiding unnecessary fees associated with switching lenders | You may be losing out on lower monthly mortgage payments |
| Skip the mortgage stress test | You might be able to take out additional equity by refinancing or switching to a new lender |
| No lengthy mortgage applications | You could be able to consolidate debt with a newly refinanced mortgage amount instead of renewing your existing mortgage |
| You can get stuck with worse mortgage terms | |
| You don’t know what you don’t know, so inform yourself of your options |
Mortgage Rates and Amortization
As your mortgage renewal date approaches, it is important to understand the impact that mortgage rates and amortization periods can have upon your total mortgage obligations, as well as your monthly payments. Mortgage rates are often impacted by economic factors, such as the Bank of Canada’s benchmark rate rising or falling, but can also be impacted by your financial situation. The greater your interest rate, the more you will have to pay over the entire course of your mortgage, as well as per-month.
Your amortization period can also have a significant impact on your payments. A shorter amortization period would mean larger monthly payments, but lower overall interest cost (given fewer interest periods). Before deciding whether or not to re-negotiate or change your current mortgage terms, it is important to grasp the impact that these terms can have on your mortgage overall.
What happens if you can’t renew your mortgage?
Provided that you keep up with your monthly payments and maintain your credit in good order, you should not have any trouble renewing your mortgage in many cases. It is important to note however, that lenders do have the right to refuse a borrower the opportunity to renew their mortgage.
In the event that you are not offered a mortgage renewal, then you would have to either payoff the entire mortgage principal in cash, sell your home to pay it off, or refinance with another mortgage lender.
In either case, you should start exploring your options early in the event that you either get denied a mortgage renewal, or in the event that you could qualify for a better mortgage product more suitable for your needs.
If you fear that you may not be given the chance to renew your current mortgage, or if you simply want to know if you can qualify for a better rate or higher mortgage amount, call Clover Mortgage at 416-674-6222 or email us at info@clovermortgage.ca to speak with a knowledgeable and experienced mortgage broker. Our brokers are standing by to help you learn and understand your options, and ensure that you get the right mortgage that best suits your needs and individual financial situation.
What can I do to ensure I get the best mortgage terms when my mortgage comes up for renewal?
In order to ensure that you stay on top of your mortgage and get ahead of the renewal time, we recommend you set a reminder in your calendar and/or phone. This way you can leave yourself enough time to explore your other options and enough time to apply for a potential better mortgage option with another mortgage lender. In addition to this tip, here are a few other important steps that can help you secure the best terms available:
- Read the terms and conditions: By understanding the implications of the terms and conditions listed in your mortgage contract, you can more easily compare and contrast it with the options provided by other lenders on the market. Knowing this information can give you a leg up during negotiations.
- Competitive rates: As you approach your renewal date, you may want to shop around for different rates, or consult a broker for insight on current market rates. This will help you determine if the rate your lender has proposed is fair and prevent overpaying.
- Negotiate for a better rate: Once you are armed with market research and knowledge of other lenders’ offerings, you may be able to negotiate a better interest rate with your current lender. This can save you the time and hassle of switching loan providers.
- Consider switching lenders: If your current lender is not willing to negotiate terms, or unable to provide you with an attractive rate, you may want to consider working with other lenders instead. Check out our renewals page for more information.
At the end of the day, provided that your lender is willing to renew your mortgage, the choice is yours as to whether you wish to renew your mortgage with your current lender or to refinance or switch lenders altogether. In order to ensure that you make the right choice, be sure to do your research and due diligence, and ask a professional mortgage broker for help should you have any questions or concerns. A reputable broker will have access to the right lenders and information to help ensure that you are making the right decision when it comes to your mortgage renewal. To consult a broker today, contact Clover Mortgage.
