Mortgage renewal is the process of renegotiating and extending your existing home loan agreement with your lender, typically at the end of the term.
There's no one-size-fits-all process for mortgage renewal. The average term-length in Canada is 5-years, and most borrowers renew after multiple terms throughout a 30-year amortization. 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 important to note that some terms, like your mortgage rate, are expected to change based on market conditions. For instance, the fixed mortgage rate you may be offered upon renewal will likely be higher than the one offered to you at the end of your last term—given rising interest rates in recent years. Furthermore, each province may have its own unique rules and limitations. Quebec, for instance, often has contractual differences from Ontario, given that the province is influenced by the Civil Code, may have distinctive rules shaping mortgage terms. The absence of a standardized approach underscores the importance of exploring alternatives. This lack of a streamlined mortgage renewal process means borrowers have the flexibility to consider different options and potentially secure more favourable terms or a better deal.
A mortgage renewal is when you simply renew the same mortgage with your current lender without making any changes to the amount or amortization period (maturity date).
A mortgage refinance is when you either take your mortgage to another lender, or if you refinance it with your current lender at a different amount and/or different amortization period.
Even if you take your current mortgage to a different lender, you have the option to keep the same mortgage amount with the same amortization period or change one or both of those factors. The first step is to determine whether or not you were satisfied with your current mortgage term.
Getting started on your mortgage renewal early will also give you time to analyze your own finances and decide whether you want to switch your terms or switch to a different lender altogether. Depending on the way your life has changed during your previous term, you might be looking for different mortgage options to better suit your current financial situation. A mortgage renewal gives you the chance to renegotiate the terms of your agreement and adjust your mortgage according to your financial needs. Before your term matures, your mortgage lender will most likely send a renewal offer in the mail outlining the interest rate they are offering and the term. You can show this letter to Clover Mortgage and have our agents hunt for a better rate and lock it in for 120 days.
A mortgage renewal statement is a document provided by your lender detailing the terms for renewing your mortgage. It typically includes your current interest rate, term length, and any new conditions.
To interpret a mortgage renewal statement, you should first carefully examine the proposed changes, and then assess if they align with your financial goals. While a renewal usually guarantees the same mortgage term and payment amount, smaller clauses may have changed in the meantime. When examining the terms of the renewal statement, be sure to pay close attention to the mentioned rates, terms, and potential fees.
If you didn't receive a mortgage renewal statement at all, you should promptly contact your lender. By law, Ontario mortgage lenders are required to send you a mortgage renewal statement at least 21 days before your term is up, but many send them even earlier, to entice clients who may be considering refinancing instead. Some lenders even let you renew early for greater peace of mind.
You should also contact your lender immediately if you discover any errors in your statement. It is important to request corrections as soon as possible, and to not sign any documents that may be erroneous. Understanding your mortgage renewal statement will empower you to make informed decisions during the renewal process, and ensure that your mortgage aligns with both your financial strategy and goals.
While you may have carefully negotiated your mortgage terms and conditions at the start of your last term, your financial situation and mortgage needs may have changed in the meantime. As you start to think about renewing your mortgage, it is important to determine whether your current lender and terms are still fulfilling your requirements, or if you would be better off looking for another mortgage.
When deciding if a mortgage renewal is right for you, it is very important to consider your current financial needs. Here are a few factors that you should keep in mind when making your ultimate decision:
Before you decide on a lender, it may be a good idea to shop around and consider different options. Look for lenders that offer the type of loan you need and compare their rates, terms, and fees. Consider traditional banks, credit unions, alternative lenders, and other federally regulated financial institutions. Reach out to multiple lenders and ask for loan estimates. Provide them with basic information about your financial situation, such as income, debt history, and the amount you are hoping to borrow.
Compare the offers from different lenders, making special note of the interest rates, loan terms, fees, and any other relevant factors. Do not be afraid to ask questions about the terms, or to inquire about discounts and promotions.
One common concern amongst borrowers is whether or not shopping around for lenders will impact their credit score. When you apply for a loan, lenders usually perform a hard inquiry on your credit report, which can slightly lower your credit score. However, credit scoring models recognize that individuals might shop around for the best interest rates. As a result, multiple inquiries within a specific timeframe (usually 14-45 days, depending on the credit scoring model) for the same type of loan are grouped together and counted as a single inquiry. This minimizes the impact on your credit score.
Working with Clover Mortgage can be an easy way to cut down on the number of hard inquiries you perform, and minimize the impact on your credit score. Our trusted brokers are well-versed with our vast network of 60+ lenders, and thus, may be able to give you rough estimates of each lender’s offer and provide mortgage renewal tips. In doing so, we can help you narrow down your pool of lenders before any hard inquiries are made, saving your credit score in the process. Contact us to get started today.
Once you have shopped around for different mortgages, and compared the different terms and rates available to you, you now have the opportunity to negotiate with your current lender to try to obtain better terms without needing to refinance. If you can gather examples of what other lenders on the market are offering, your lender may be compelled to match the terms and rates offered. Of course, this will be more difficult to do if your lender has an automatic renewal statement. You should determine early-on whether your mortgage will automatically renew, and ensure that you plan accordingly.
If you are having trouble navigating the negotiation process, you may want to consult a trusted mortgage broker. Clover Mortgage brokers can not only help you compare over 150 different mortgage products across 60+ brokers, to determine which is best for you, but can also conduct lender negotiations on your behalf — leading to better terms and rates.
As you navigate the renewal process, you may find yourself interested in switching lenders. While other lenders may have more favourable rates or terms, it is important to calculate the full impact of all associated switching costs before deciding how to proceed. When determining whether to switch lenders (to a new mortgage lender) or renew with your current one, please keep in mind the following considerations:
Before making a decision, thoroughly review your current mortgage agreement, understand the terms and penalties, compare offers from different lenders, and calculate the potential savings in your monthly mortgage payments. Ultimately, the decision to switch should align with your financial goals and long-term plans.
Getting approved for a residential mortgage or refinance in Canada has become increasingly difficult over the past few years and Canadians need a new and more pleasant solution for their property financing needs. That’s where we come in. Here at Clover Mortgage, we have the experience and knowledge to help make it easy to renew your mortgage, or to get approved for a mortgage at great competitive rates—even if the big banks turn you away.
We aim to offer you the most innovative and competitive customized mortgage solutions that fit your needs and individual situation, all while helping you save money. By employing experienced mortgage brokers and mortgage underwriters, while providing industry-leading training to new mortgage agents, we are able to provide trustworthy and reliable advice and service, while offering some of the best rates and lowest pricing in the country!
We furthermore are well equipped to help you compare your renewal and refinancing options. We actively work with a network of over 60 lenders and 150+ mortgage products, and can help you compare and contrast terms, rates, and approval conditions, in order to find the best match for you and your finances. Navigating the Canadian housing market is hard, but it doesn’t have to be. Contact us today to schedule a free consultation.
Let’s take the following scenarios as an examples of how a mortgage process can work in different situations.
In the first situation, we have a borrower homeowner, Mr. Walters, who had been saving a fair portion of his income every month since originally buying his home 5 years ago. He now has $100,000 in his savings account at his bank. Now that his initial 5-year fixed rate mortgage term is coming up for renewal, Mr. Walters would like to pay down the remaining principal of his mortgage by $100,000. Since it is renewal time, Mr. Walters will not encounter any mortgage prepayment penalties for paying early. Instead, he will simply pay the $100,000 to his bank and renew a mortgage for the remaining balance.
To illustrate this in a mathematical way, let’s say that his original mortgage principal was $800,000 and at the end of his 5-year term he has paid it down by $60,000 through his regular monthly mortgage payments. Here’s how the formula will work:
$800,000 - $60,000 = $740,000
This means that he now has only $740,000 remaining at renewal time. Now let’s see what it looks like once he puts the additional $100,000 he saved up towards the remaining mortgage balance.
$740,000 - $100,000 = $640,000
He will now only have a remaining balance of $640,000 that he will need to renew for. He has the option at this point to renew his mortgage at the newly negotiated rate for a principal balance of $640,000, or he can refinance his mortgage with a different lender, or even the same lender who will consider the newly reduce loan to value (LTV) which might provide Mr. Walters with an opportunity to get an even lower mortgage rate for his newly renewed or refinanced mortgage.
In this scenario, Mrs. Anderson wishes to sell her property 2-years into a portable fixed 5-year fixed mortgage term, 3-years prior to her renewal date, in order to purchase a new property. She will be using the proceeds of the sale of current home as a down payment on her new property. If she were to break he mortgage with 3 rears remaining, Mrs. Anderson would have to pay a penalty. Since this is a fixed rate mortgage, the pre-payment penalty would likely be the equivalent of the greater of either interest rate differential (IRD) or 3 months of interest payments. This can amount to a hefty amount.
Since Mrs. Anderson’s current mortgage is portable, if she were to requalify based on today’s stress test policy, she would be able to port her existing mortgage to the new property and continue on until renewal without any penalty.
Mr. Johnson purchased a home 1 year ago and took out a private mortgage for a 1 year term. His private mortgage is coming up for renewal and his current private lender is requesting some updated documentation.
If this was not a private mortgage and was a mortgage with either a bank, a trust company, credit union, or other AAA or Alternative lending institution, the process would be simpler. Either the borrower would renew directly with the lender with minimal costs and fees, or they would work with their mortgage broker to help them negotiate the most favourable renewal rate and terms.
Since they are renewing a mortgage, they will likely need to provide their lender with an updated appraisal report, updated home and fire insurance policy, updated property tax bill showing that their property taxes are all paid and up to date. Provided that these are all to the satisfaction of the lender, the borrower would then either be required to pay a renewal fee, or if there is enough remaining equity in the home, the lender might be willing to add the renewal fee to the outstanding principal balance of the mortgage.
Once all of this has been determined, the borrower would need to refer to a lawyer to close the transaction. As the renewal process with a private lender tends to be usually more involved than a traditional mortgage renewal options from a traditional lender, the borrower might be better served working with their mortgage broker or mortgage agent to help make this process as smooth as possible, and to help ensure they are getting the best rate and terms that are available to them at that time.
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