Mortgage Renewal Rate Increase Options

When a mortgage is issued, it has a definite time period or term.  Depending on how the mortgage is written, it can be a few months or years.  It is expected that the loan will be repaid at the end of its term.  However, if not, then the mortgage must be renewed.  In the case of short terms on mortgages, around five years or less, this renewal process will occur several times.

If this is the situation you will be facing in the near future, you need to realize some options.

Navigating Rising Interest Rates

Trying to slow the inflation rate, the Bank of Canada has been increasing its prime rate and this trend is expected to continue.  That means if you simply renew the existing loan on your property, it is likely that you will pay a higher interest rate than previously, which, in turn, means higher monthly mortgage payments.  How your loan payments are structured will determine how much your monthly payment will increase.

If you have some time before the renewal date is reached and have a variable-rate mortgage but a fixed payment, your payment amounts probably haven’t changed.  But you should be concerned.  That means the money you are applying to your loan will satisfy the interest amount first, and you will not be reducing the principal as much as you think.  If you are in this situation, you may want to consider increasing the number of payments per month, making a lump sum prepayment, or refinancing to a fixed-rate mortgage.

Understanding the Mortgage Renewal Notice Process

A reasonable time before the term of your mortgage is set to expire (probably weeks or even months), you will receive an official notice about what the lender is willing to offer, including any charges that will be associated with a mortgage renewal.

Should you decide to find another lender, you need to realize that if you move to another lender, you will need to requalify because, in reality, this is a whole new loan.  So, if you are on shaky ground, staying with the same lender would be advantageous since you would not need to go through the process of requalification.

The most popular term for a loan is five years.  With the current trend in interest rates, it may be more prudent to opt for a shorter term of one or three years.  Because you will be locked in for a shorter duration, if the market lowers the interest rate, you will be able to adjust without breaking the contract.

You are not obligated to simply renew with the same lender.  In fact, if you are in good financial credit shape, you should seriously consider shopping for another mortgage.  Even if you decide it would be best to stay with the lender you currently have, you will have information that could be used as a bargaining tool.  If you do opt to move to another lender, besides requalifying, you will have fees like an appraisal, set-ups, transfer fees from the current lender, new mortgage loan insurance premiums and others.

Simplify the Decision-Making Process

There is a lot of information to absorb and consider.  A good place to start is with where you will find professionals who can talk you through the process, answer your questions, and help you make the best decision for your situation.