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Renewal

Did you know that there are nearly five million mortgages in Canada today? Homeownership remains a dream of many Canadians. They’re willing to take on debt to fulfill this goal.

In 1999, 60 percent of Canadian families owned their homes. By 2016, this figure increased by 3 percent. From 1999 to 2016, mortgage debt comprised two-thirds of the overall increase in debt among Canadian families.  The median amount of mortgage debt almost doubled, expanding from $91,900 to $180,000 across all demographic groups and regions. No wonder many Canadians ask, “What Is mortgage renewal?”

After all, 74 percent of those with mortgages have a fixed rate, 21 percent have a variable rate, and 5 percent have a fixed and variable rate. Here’s what you need to know about mortgage renewal.

Frequently Asked Questions

What Is Mortgage Renewal in Canada?

In a nutshell, a mortgage renewal represents an extension or new agreement that you enter into with your mortgage holder. Most mortgages require monthly payments.

When homeowners make payments promptly, they may pay off their mortgages within 30 years. This payment timeframe is known as the amortization period. That said, some homeowners opt for mortgages with shorter terms, such as 15 or even ten years.

How does mortgage renewal fit into the mix?

Let’s say you take out a $200,000 mortgage to purchase a home, and it sits at a 7 percent APR. You have a four-year term. This scenario would place your monthly payments at $1,317.21 over a 30-year amortization period.

But you only have a four-year term, so what gives? It means that after four years, if the mortgage doesn’t get renewed, the mortgage holder will demand payment in full. In other words, you’ll need to go through a different lender or renew the mortgage.

Of course, if you have an excellent payment history, there are usually no issues with getting a renewal from your original mortgage holder. Does that mean your mortgage with automatically renew? Let’s take a closer look.

Will My Mortgage Automatically Renew?

Mortgage renewal often proceeds in a fashion similar to car insurance renewal. In other words, you’ll receive renewal paperwork from the mortgage company that you must sign and return. This act cements the new mortgage in place.

What is the renewal amount based on?

The amount you owe at the time of the renewal. For example, returning to our previous example, let’s say your balance is $190,000 at renewal time. Then, you’d be entering into a new agreement for $190,000.

If you play your cards right and make timely payments, it should be relatively easy. That said, you must consider a variety of factors before agreeing to renew a mortgage on the same terms.

You’ll want to explore whether interest rates are higher or lower than they were when you entered into your previous mortgage. You should also think about whether you were happy with the last lender and if you want to do business with them again. You’ll also want to inquire about fees and costs related to switching mortgage lenders if you’re interested in going a different route.

As you can see, the process isn’t always automatic. Depending on the company you work with, however, it can be.  When you receive a renewal letter, read it carefully, looking for notices of automatic renewal. If your mortgage holder intends to renew your mortgage after the renewal date automatically, the company should state this clearly.

Should I Go With a Short Term or Long Term Mortgage?

Why might a consumer take out a shorter-term on a mortgage? Besides the desire to fit into a specific pre-determined timeline, some consumers use short term mortgages as a strategy.

How does this work?

Instead of taking out the most extended mortgage possible when interest rates are low, they opt-in when rates are higher. To avoid losing extra money in charges, they go with shorter terms.

Hopefully, when their mortgage comes up for renewal, rates will prove more favorable, and they can lock in these rates. That said, you should consult with a professional before this type of gamble. Sometimes, there are better options than this approach.

Do I Have to Renew My Mortgage?

Some customers have questions about their options when it comes to renewing a mortgage. If your lender sends you renewal papers, must you sign them? The short and simple answer is no.

Paperwork typically arrives four months before the actual renewal date. This timeframe lets you reassess your finances. It also enables you to explore current interest rates along with the costs associated with switching mortgage holders if you find a better deal.

What are some other things you might wish to consider when you receive renewal paperwork? For starters, are you now making more money than you were before? If so, it’s well worth your time to check into mortgages with higher monthly payments and shorter terms.

You’ll also want to see whether interest rates have dropped since you took out your last mortgage. If so, it’s time to contact some holders to see what they might be able to offer in terms of better rates. Shopping around to find the most advantageous terms always makes sense.

Can You Pay Off Your Mortgage at Renewal?

Let’s say you’re going to renew at the end of your mortgage and would like to pay it off more quickly.

What do you need to know?

Start by checking the fine print on your loan agreements. Or you may also wish to give your mortgage holder a call to inquire about an early payoff. Either way, you can find out what your options are and whether or not you’ll face any penalties for early payoff.

Paying off a mortgage early can prove a very costly endeavor because of penalties, so you should be well-informed before proceeding with an early payoff. There are several charges you must know about when paying down a mortgage before the term ends.

Incidentally, you would face these same charges when refinancing a mortgage.

What do these charges include?

A prepayment penalty is typically equal to three months of interest if you’ve got a variable mortgage rate.

What about fixed rates?

You’ll usually pay the higher of two options:

  1. Three months of interest
  2. The interest rate differential (IRD)

There are many online mortgage penalty calculators to help you estimate what these costs will look like. That said, it remains in your interest to avoid large penalty fees in the first place.

How Can You Avoid Penalty Fees?

As you can see, mortgage penalty fees can add up quickly. How do you avoid them altogether? By doing the following:

  • Go with shorter terms
  • Consider a secured line of credit
  • Remain patient

Here’s what you need to know about each of these recommendations and how they can help you avoid racking up unnecessary charges.

Go With Shorter Terms

You should always go with a term that fits your desired timeline. For example, if you think you can swing paying off a home in five years, consider going with an even shorter term.

For example, if you go with a three-year term instead, you can make larger payments while avoiding early payoff fees.

Consider a Secured Line of Credit

Some consumers choose to convert their mortgages into a secured line of credit. Why? Because this permits you to pay down the line of credit whenever you’d like.

You won’t face any penalties, and you can also borrow extra for renovations and improvements in many cases. Just know that interest rates will prove higher than with a mortgage.

And if you have trouble sticking to a budget, a secured line of credit could prove more of a temptation that you might be able to avoid.

Remain Patient

If you lock in a mortgage with low-interest rates, it’s still likely the best way to pay off your home. That said, you’ll need to remain patient and pay off your loan based on the terms you agreed to.

After all, patience is a virtue, and you may find that paying off a mortgage over the long-term will save you loads of money once penalties get calculated.

What Are Some Options for Paying Down a Mortgage Quickly?

What are some of the charges you’ll most likely come across in the fine print? They may include prepayment charges for:

  • Lump-sum payments
  • Double-up payments
  • Increased payment frequency
  • Renewal payments

Let’s take a closer look at each of these categories and what fees might look like for an early payoff.

Lump-Sum Payments

What are lump-sum payments? These are large payments most mortgage holders permit customers to make annually.

How large? They typically comprise between ten and 20 percent of the original principal amount. Payments go towards a reduction of the amount of interest you must pay on the original principal.

Double-Up Payments

Many mortgage holders also allow customers to make double payments. For example, if your monthly mortgage payment is $1,600, you may pay up to $3,200 per month.

Where do these payments go?

They get applied directly to the principal.

Increased Payment Frequency

What are some other options when it comes to paying off a mortgage more rapidly? If you’re paying every month, you can switch to semi-monthly, bi-weekly, or even weekly installments to pay down your balance.

You may also be able to make accelerated payments based on all three of the options listed above.

What are accelerated payments?

These are higher payments, permitting you to pay less interest over the length of your loan.

Renewal Payments 

In most cases, you also have the option of making renewal payments each time your mortgage renews. These payments may be as large as you like without any penalty payments.

How Should You Negotiate Mortgage Renewal?

Some consumers fail to realize they have options when it comes to mortgage renewal. These include the ability to negotiate new rates and terms.

Recently, rates have fallen, so now represents a good time to refinance. In the process, you may get better rates.

What if your current holder doesn’t work with you when it comes to negotiating? Don’t be afraid to shop around for a better deal.

Before you go with a new company, though, make sure you’ll benefit from the new mortgage. How do you do this? Start by calculating fees and penalties associated with switching companies to ensure a swap is still beneficial.

How Early Can You Renew Your Mortgage?

Sometimes, lenders permit homeowners to renew their mortgages early. How early? Up to 120 days before the renewal date of the mortgage with no penalties.

That said, you may not have this option. After all, not all lenders like to deal in early renewals. Nevertheless, you should usually receive paperwork for renewal four months or 120 days before the renewal date.

What if you work with a lender that permits early renewals? For starters, you must realize this may not prove to be your best option. Remember that even with companies that offer up to 180 days’ advance notice, you could incur a penalty by switching to a different lender.

Early renewal only makes sense if you’re in an environment of increasing rates. Why? Because it provides you with the opportunity to lock in rates before they skyrocket.

What happens if another lender approaches you, offering a better rate? You’ll end up paying the penalty to break your current contract.

As long as you stick to shopping the competition no more than 120 days before your renewal date, you can avoid costs associated with breaking the contract. You’ll also enjoy more fantastic options because your existing lender, along with others, will be competing for your business.

What Happens When My Mortgage Is Up for Renewal?

How Does Mortgage Renewal Work in Canada? By law, a mortgage lender must provide you with renewal paperwork no less than 21 days before the end of the current terms.

Your mortgage holder must also notify you within 21 days if they’re going to renew your mortgage. What does this notification entail? You’ll either receive a paper or electronic statement based on your preferred method of communication.

On this renewal statement, your company must provide all of the following information:

  • The interest rate on your mortgage
  • The remaining principal or balance at the time of the renewal date
  • The frequency of payments
  • The term
  • Any fees or charges that apply

The statement should also delineate that interest rates offered won’t increase until the renewal date arrives. Some consumers also receive a mortgage renewal contract at the time they get a renewal statement.

At this point, you may simply sign and return the letter, accepting the terms of your mortgage holder. But we recommend additional steps to secure the best rates and deal possible. Here’s what you should do after receiving a mortgage letter.

What Should You Do After Receiving a Mortgage Renewal Letter?

What’s the next step after you’ve received your mortgage renewal statement? You’ll want to assess your current situation, the financial climate, and whether any changes are needed to address your short- and long-term financial objectives.

Next, we always recommend shopping around to see what other companies might be able to offer you. Just remember you’ve got to factor in all fees for a refinance if this is the route you choose to go.

Once you’ve got an idea of what’s out there, go back to your current mortgage company and attempt to negotiate better interest rates. Ask about whether or not you might qualify for a discounted interest rate lower than the rate offered in your renewal letter.

Make it clear to your current lender that you’ve received better offers and let them know what these offers are. Always report these offers as accurately as possible and be prepared to provide proof if asked.

If you don’t take action during your mortgage renewal window, it could occur automatically. If this happens, you likely won’t enjoy the best rates and conditions possible.

When you receive your renewal letter, look for wording about automatic renewals. Your holder should inform you of such plans in this letter.

Should I Renew My Mortgage Now?

Some customers want to know whether they should renew their mortgage now. As you can see from the answers to other questions listed above, the answer to this question depends on various factors.

These factors include:

  • How close you are to your mortgages renewal date
  • What current interest rates look like
  • Whether or not you’ve had changes in your finances since taking out your previous mortgage
  • What your ultimate goals for paying off your mortgage are
  • Whether you’ve received better offers from other companies
  • What costs to change lenders look like

Once you’ve got answers to the questions above, you should weigh the pros and cons. Only then will you know whether or not mortgage renewal makes sense for you.

Can I Renew My Mortgage Online?

Because we live in the Digital Age, it’s never been easier to renew a mortgage online. Especially if you work with a lender that puts a premium on customer convenience.

For many homeowners going with the same company, it’s as simple as logging into their online banking account and clicking on their mortgage account. From there, you’ll navigate to your Mortgage Renewal Agreement. Simply accept the terms, and you’re done.

Another fantastic advantage of sticking with your current mortgage holder is that you won’t have to worry about re-qualifying.

Of course, if you switch companies, refinancing becomes much more complicated. While you can still complete most of the steps online, you’ll need to sign some paperwork in person.

Can a Bank Deny Mortgage Renewal?

Some consumers have concerns about whether a holder will deny their mortgage renewal. But is this a valid concern? If you pay on time, a denial shouldn’t be an issue.

If you’re considering a move to a new company, and your credit score has dropped since getting you home, you could get denied by a new company. It may be in your best interest to stay with your current holder.

Your chances of having a mortgage renewal denied by a new company remain much higher than with your current holder. You must bear this in mind as you shop around and explore your options.

Besides poor credit, other factors could impact a new lender’s decision. These include volatile work history, missed mortgage payments, or other debt and loan repayments.

What happens if both your current lender and new lenders deny your renewal? You may have to work with “B” lenders. What are “B” lenders? These are trust companies and poor credit institutional lenders.

Unfortunately, if your credit score proves low enough, “B” lenders may not be an option, either. In this case, you’ll need to explore other options like working with a private lender or selling your home.

That said, the likelihood of a mortgage renewal progressing to this point is quite rare. But it’s essential to be aware of this possibility, especially if your finances have declined drastically.

Will a Consumer Proposal Affect My Mortgage?

For those struggling with personal finances, filing a consumer proposal may make sense. It’s an excellent way to safeguard your assets from creditors. And it permits you to negotiate down some of your debts.

Not only does a consumer proposal protect assets like your home from debt collectors, but it could also up your chances for renewal.

Why? Because this proactive approach to dealing with debt will result in better credit scores, which positively influence your likelihood of renewal.

What’s the Final Step in Paying Off a Mortgage?

Let’s say you’ve made your final mortgage payment on your house. Congratulations! You’re off the hook.

That said, there’s now more thing you must remember to do. You need to ensure that the lender’s lien (or its rights) get removed from your property’s title. Only then will the mortgage get discharged.

How do you do this? You’ve got a handful of options. You may work with your provincial or territorial land title registry office to ensure the mortgage gets discharged correctly.

Or you may contact the lender directly. Know that this transaction will involve fees. How much? Costs vary depending on your geographic location.

What happens after the discharge gets completed?

Congratulations! You’re free from further mortgage payments.

The Financial Help You Need

Few decisions have a more significant impact on your long-term financial health than a home mortgage. The article above provides a detailed answer to, “What is mortgage renewal?” It also includes responses to many other recently asked questions.

Armed with this knowledge, you can make better financial decisions moving forward. But you don’t have to go it alone. Contact us today to discuss your mortgage renewal needs.

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