Renewing your mortgage at the peak – It’s Your Money

As the interest rate landscape begins to shift after a period of high rates, Canadian mortgage holders facing renewal have an opportunity to re-evaluate their options.

With signs of rates starting to ease, and the first (far too small) rate cut now behind us, it’s crucial to approach your mortgage renewal strategically.

Here’s a guide to help you navigate this critical financial decision.

Understanding the current market dynamics, the Bank of Canada’s interest rate policies significantly impact mortgage rates. After a period of rate hikes designed to curb inflation, there’s cautious optimism that we are at the beginning of a downward trend. However, the economic environment remains volatile, and predictions can change quickly.

As you approach your mortgage renewal, being informed and proactive is key. Here’s a checklist to help you make the best decision when your renewal is on the near horizon:

1. Assess tour current financial situation

• Review your income, expenses, and any changes in your financial circumstances since you last renewed your mortgage.

• Evaluate your long-term financial goals, such as paying off your mortgage sooner or reducing monthly payments.

2. Check your credit score

• A good credit score can provide leverage in negotiating better mortgage rates.

• Obtain a copy of your credit report and correct any errors that may negatively impact your score.

3. Research market rates and trends

• Keep an eye on current mortgage rates and economic forecasts.

• Compare rates from various lenders to get a sense of what’s available in the market.

4. Consider the type of mortgage

• Decide between a fixed-rate and a variable-rate mortgage. Fixed rates offer stability, while variable rates may offer lower initial rates with the potential for savings if rates fall.

• Evaluate hybrid mortgages if you want a mix of stability and flexibility.

• While most fixed rate mortgages are set for a five-year period, don’t just compare a five year fixed to a variable – consider shorter terms as well.

5. Evaluate the term and amortization

• Shorter terms often have lower rates but require renewal sooner, potentially at a different rate environment.

• Consider the impact of extending or shortening your amortization period on your monthly payments and overall interest costs.

6. Calculate potential penalties

• Understand any penalties associated with breaking your mortgage early or switching lenders—it is very unlikely breaking a mortgage early will make sense right now.

• Factor these costs into your decision-making process.

7. Explore prepayment options

• Some mortgages offer the ability to make extra payments without penalties, which can save on interest over the life of the loan.

• Review your current mortgage’s prepayment privileges and compare them with new offers.

8. Negotiate with your current lender

• Don’t accept the first offer from your current lender. Use your research to negotiate better terms.

• Ask about loyalty discounts or incentives for renewing your mortgage with them.

9. Consult multiple lenders and brokers

• Shop around and get quotes from various lenders, including banks, credit unions, and mortgage brokers.

• Be wary of brokers pushing specific products. Their recommendations may be influenced by commissions or incentives.

10. Seek professional advice

• Consider consulting a professional financial planner to align your mortgage decision with your broader financial goals.

• A mortgage broker can provide access to multiple lenders but ensure they’re transparent about any commissions they earn—ask them to show the commissions earned on each possible option.

• Stay skeptical about any limited time offers. You need to take your time to evaluate all the options and be cautious about high pressure sales tactics. And get everything in writing too.

Renewing your mortgage in a shifting interest rate environment can be challenging, but it also presents opportunities. By staying informed, exploring your options, and negotiating effectively, you can secure terms that align with your financial goals. Remember, this is a significant financial decision—take the time to make it wisely.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.