Canada faces an unprecedented mortgage renewal wave over the next two years. Millions of homeowners locked into low 2020-2022 rates will soon see those mortgages maturing. With interest rates now much higher, many Canadians worry about affording this pending “mortgage renewal tsunami” and how to navigate the challenging period ahead.
According to data from the Canadian Bankers Association, a staggering $700 billion worth of mortgages are set to mature between 2024-2025. That equates to nearly half of all existing mortgages in the country! With so many renewals on the horizon, preparation will be critical for homeowners looking to secure the best rates and terms.
In this comprehensive guide, we’ll explore strategies for successfully riding out the mortgage renewal wave. From understanding your options and timing the market to exploring alternative lenders and loan products, we’ve got tips to help position you for a smooth transition.
When Should You Start Preparing?
The general rule of thumb is to begin the mortgage renewal process approximately 4-6 months before your maturity date. Many lenders will let you start inquiring 120 days before renewal.
Use this time to get organized, check your credit, calculate potential penalties, and start shopping the market for competitive rates. An early start allows you to negotiate from a position of strength.
During the renewal period (typically a 30-day window), the options from your existing lender will be firm vs. just being a rate hold or estimate from other lenders.
Understand Your Options
When your mortgage comes up for renewal, you essentially have three main options:
- Renew with your existing lender
- Refinance with a new lender
- Pay off your mortgage entirely
Renewing
For most, the choice will come down to renewing vs. refinancing. Here’s a quick overview of each scenario:
Renewing tends to be the most straightforward route. Your current lender will provide tailored renewal terms based on your mortgage details and up-to-date market rates. Renewals can often be processed remotely with less documentation required.
Refinancing
While more complex, refinancing allows you to shop around with other Canadian lenders for potentially better rates or access to equity. This may involve updating documentation, paying fees, and re-applying a full mortgage approval.
Paying Off
You can pay out your remaining mortgage balance upon maturity if you have the funds available. While rare, this allows you to become mortgage-free.
Get Mortgage Renewal Rate Estimates
With so much uncertainty surrounding future rate movements, getting an early rate estimate or “rate hold” will be important. Many lenders will be happy to provide renewal estimates several months before your maturity.
Lenders typically provide a range, like “5.25% – 5.75% for a 5-year fixed mortgage.” Having this benchmark narrows down what rates to expect and lets you shop to see if you can find a better deal elsewhere before committing.
The estimate also allows you to get pre-approved for a refinance if the renewal rates from your current lender are not appealing.
Leverage Penalties to Your Advantage
Depending on your mortgage terms, penalties may be involved if you decide to refinance with a new lender or break your term early. These penalties can sometimes total thousands of dollars.
However, these same penalties can work in your favour during a renewal negotiation. Lenders are incentivized to provide a desirable renewal offer to avoid costly penalized payout and retain customers.
You gain leverage by being upfront and showing you’ve done your homework on renewal rates and penalties. Your current lender may be willing to match or beat a competitor’s rate to keep you from switching.
Consider Alternative Lenders
The mortgage landscape has evolved rapidly, with more alternative and private lenders competing alongside major Canadian banks. These alternative options could provide a solution for those potentially facing a “stress test” renewal where they no longer qualify under today’s tighter lending rules.
Credit unions, monolines, and private lenders often approve mortgages using different qualification criteria. They may accept alternative income documentation or require smaller down payments.
The caveat is that these lenders charge higher interest rates to compensate for increased risk. But for some, paying a premium rate for a few years beats being denied a mortgage renewal entirely.
Explore Your Options
Even if you ultimately decide to renew with your current lender, it’s wise to explore all the available mortgage options. This ensures you secure the best rate and terms available during the upcoming renewal period.
Whether weighing fixed vs. variable, calculating potential penalties, reviewing amortizations, or assessing alternative paths, professional mortgage advice has never been more critical during this mortgage renewal wave. With diligent preparation and access to multiple lenders, you can successfully navigate the tsunami and comfortably renew into a mortgage solution tailored to your unique needs.
The Value of a Mortgage Broker
Utilizing an experienced, unbiased mortgage broker can make a significant difference. As professionals with deep lender knowledge and negotiating power, brokers save you time and money by shopping around for you.
A broker can access rates and products from various banks, credit unions, monoline lenders and private lending sources. Rather than being limited to the renewal options from a single institution, brokers can explore possibilities from multiple lenders to uncover optimal rates and mortgage terms aligned with your specific qualifications and goals.
Additionally, mortgage brokers are experts at understanding the numerous variables that impact your renewal situation – from debt service ratios to penalties, porting possibilities and more. With a broker’s guidance, you can confidently weigh the pros and cons to make the right choice for renewing, refinancing or even pursuing opportunities to invest in properties.
Unlike individual bank employees restricted to promoting that institution’s products and rates, brokers work for you, not any lender. This allows them to provide unbiased advice founded in your best interests.
While some homeowners explore renewals independently, having an experienced mortgage professional advocate on your behalf provides meaningful value during this challenging renewal period. With a broker’s strategic support, you’re empowered to secure excellent mortgage financing tailored to your needs while avoiding costly mistakes, missed opportunities, or excessive penalties.
Take Proactive Steps Today
No matter where you are in your mortgage term, it’s never too early to begin preparing for your upcoming renewal…
