What Does Renewing a Mortgage mean?

When you enter into a mortgage contract with a financial institution, the contract is usually for a maximum of 5 years, even though your monthly payments are based on an amortization of 20 years. That means it would take 20 years of your current monthly payments to completely pay off your mortgage loan. Once you near the end of the 5 year term, it is expected that you’ll go through the process of a mortgage renewal.  A mortgage renewal is simply extending your current mortgage agreement for another term.

Should I Renew my Mortgage with my Current Lender?

A question that often comes up at the end of a homeowner’s mortgage term is whether or not they should renew their mortgage agreement with their existing lender. As a Vancouver Mortgage Broker, I recommend that homeowners always review their options before extending their mortgage with the current lender.

Something that many homeowners do not know, is that the lender expects you to simply sign the renewal notice, no questions asked. Because of this, the lender likely won’t provide any incentives for you to stay with them, as they don’t feel like they need to fight for your business.

6 Tips for RenewingYour Mortgage

1. Remember to Start Early

Do not wait until right before your term expires before deciding what to do! It is recommended that you start the process four months before you need to make a decision. This gives you enough time to weigh your options, see what other lenders are offering. On your calendar mark the date that is four months prior to your term end, so you do not overlook this important tip. By starting early you can avoid feeling pressure to make a hasty decision that you are not totally comfortable with.

2. Think About your Future

There are no one size fits all mortgages. So the mortgage product you had for the last 5 years may not be a great fit for what you have in store for the next 5 years. Is there any chance you’ll need to move in the near future? Are you expecting a large bonus from work or an inheritance? Are you nearing retirement age? These are all very important things that should be considered when choosing a mortgage product.

3. Negotiating is an Option

If you’ve reviewed the options and still feel like you’d like to stay with your current lender, make sure no money is left on the table. While they are not going to bring it up, most lenders are open to negotiating. Before you sign the renewal slip, ask them what they are willing to offer you in order to remain a loyal client of theirs. You’d be surprised how open they might be to adjusting rates or conditions in your favour!

4. Keep an Open Mind About Lenders

Signing the renewal slip is and staying with your current lender requires almost zero effort, however it could end up costing you thousands and thousand of dollars in extra interest payments in the long run. A different lender may have a mortgage product that suits you better and is more cost effective than anything your existing lender can offer you. By switching lenders you will need to do go through the paperwork process again, but the small inconvenience is completely worth it.

5. Get Help from an Expert

You may think that arranging your original mortgage was difficult enough and that researching other financial institution’s mortgage products does not sound like something you want to do. If this is the case, work with a mortgage broker! A mortgage broker knows what all the different lenders are offering in terms of rates, and products. It is their job to find you the most suitable lender for your situation. A broker will do all the research on your behalf, presenting you only with the most desirable options.

Final thoughts on Mortgage Renewals

Whether you choose to stay with your existing lender, or decide to make the move to a new lender, it is extremely important continue to fit the mold of an ideal borrower leading up to your renewal. This means maintaining excellent credit, paying all your bills on time, and maintaining stable employment.

If you stay with your existing mortgage lender, you won’t need to re-qualify for your mortgage renewal, but they will review your financial status before sending you a renewal notice. If there have been significant changes to your financial situation, and the lender no longer feels you’ll be able to pay back their loan, they may not offer you a renewal. While this this is fairly unlikely to happen, it is possible!

Meeting all the requirements of an ideal borrower is especially important if you decide to switch lenders. When you switch lender, the paperwork to do so includes re qualifying. This means the lender is going to review all your finances, credit, assets, and employment information in depth, just like when you applied for your original mortgage loan.