One of the most overlooked and expensive mistakes made in personal finance is overlooking your mortgage renewal. For many Canadians, the mortgage renewal process is often seen as a routine task, simply rolling over the existing mortgage with the same lender. However, taking the time to explore your options and shop around can be a game-changer, potentially saving you thousands of dollars. In this post, we will better explain the importance of looking beyond your current mortgage provider when renewing your mortgage.
Understanding Mortgage Renewals:
Your mortgage is broken down into two separate timelines, amortization and term. Amortization is defined as the life of your mortgage (usually 25-30 years) while your term is the length of time you have negotiated your current rate and structure (fixed/variable). Typically happening every 1-5 years, when your term expires it is time to renew your mortgage with your current lender of explore all the options in the marketplace.
The Lure of Loyalty:
Weather it is convenience, loyalty, or lethargy, far too many households choose to simply renew with their current mortgage provider before speaking to a mortgage professional regarding their options. Mortgage markets are ever changing, and competition in the Canadian Mortgage space has never been more fierce. Staying with your current mortgage provider without exploring your options could mean missing out on SIGNIFICANT savings.
The Benefits of Looking Around:
- Better Rates: By shopping around, you will better educate yourself with the current rate climate and ensure that you receive the lowest rates and terms on your renewal. A reduction of .5% on a $300,000 mortgage could save you over $12,000 over a 5 year period.
- Negotiating Power: Once you know what rates are available to you, going back to your current lender will better prepare you for negotiating. Presenting your offers to them will make them more receptive to adjusting their rates to compete.
- Flexibility: Planning on upsizing or downsizing in the next few years? Having the proper flexibility means more than a low rate in many instances. Ensuring that your mortgage is transferrable to your new property (port) or ability to make extra payments to reduce the balance sooner matter!
- Avoiding Complacency: The mortgage market is constantly evolving, and new lenders may enter the scene with innovative products or features. By shopping around, you stay informed about the latest offerings, ensuring you make a well-informed decision based on your current financial situation.
Tips for Finding the Best Options:
- Consult a Mortgage Professional – Many “mortgage specialists” will help you find the best product for the lender they work for but it is most often not the best product in the marketplace. Working with an independent mortgage broker that will present all lender options to you is a great way for you to save time and educate yourself on all rates in the marketplace.
- Start Early – Begin exploring your options as far out as 9mmonths to renewal date. With most lenders able to “lock in” a rate for you months before your renewal date, you can take advantage of today’s rates while watching for further rate changes closer to your renewal date.
- Compare More Than Just Rates – Consider all factors that come with your renewal offering. Pre-payment limits, portability, and penalties for breaking the term if you move or sell early are all factors to consider.
Lenders tend to rely on your loyalty at time of renewal and most do not offer you the lowest rate options when it comes time to renew with them. Did you know that the majority of profit that the banks make are on the first renewal term (years 6-10 of your mortgage)? While it being familiar and seemingly easy to renew with your existing lender, this decision could cost you more than you know. Having a mortgage professional explore the marketplace for you costs you nothing and could save you thousands of dollars over your next mortgage term. A little effort on your part could go a long way in helping you win the rate battle!
Contact your Advanced Mortgage Professional today.