We like to think of mortgage renewals as an opportunity to press the reset button on your mortgage. “51% of Canadian homeowners don’t plan on changing lenders when their mortgage comes up for renewal — and 9% weren't even aware that they could switch lenders to get a better rate.” says Shaistha Khan by Rates.ca. The mortgage industry is constantly changing and, potentially, so has your financial situation. Luckily, renewals are the perfect time to re-evaluate how you're using your mortgage as a financial tool. Here are five reasons why you should explore your options for mortgage renewal instead of staying with the same lender's offer:
1. Get a Better Interest Rate
Not only will rates have changed throughout your mortgage term, but so have your qualifications as a borrower. It's possible that due to paying off debts, increasing your credit score, or a pay raise - you can qualify for a better rate with lenders. Although the difference in interest rates may seem minimal, they have a larger impact than you may think. See below:
This chart illustrates how significant changes in interest rates can make in the long term. If we compare Lender 1 (5.74%) and Lender 4 (4.54%) the difference in MONTHLY payments is $343.68 which averages out to $20,620.80 over the 5-Year term. That's a good chunk of change that could be better used elsewhere. Every little bit counts!
2. Save Money on Fees
In addition to interest rates, mortgage products can vary in terms of fees and penalties. By exploring your options for mortgage renewal, you may be able to find a mortgage product with lower fees or more favourable penalties. This can save you money if you need to break your mortgage early or make changes to your mortgage terms. It's good to know that most lenders will cover the cost for you to transfer your mortgage to their institution - they want your business!
3. Improve Your Financial Situation
Mortgage renewals are basically a big RESET button. You can modify certain aspects of your mortgage strategy to better serve your financial situation. That could be having a shorter mortgage term, switching from a fixed-rate to a variable rate, updating your payment frequency, or changing your amortization. For example, for those struggling with cash flow, extending your amortization is a good option as it helps reduce your monthly payment amount. We encourage you to look at your mortgage like a financial tool. A well-thought out mortgage can be invaluable in helping you stabilize your financial future.
4. Access Equity in Your Home
If you've built up equity in your home over the term of your mortgage, exploring your options for renewal can help you access that equity. By refinancing your mortgage, you can use your equity toward debt consolidation, home renovations, or other assets such as rental properties. This can be a great way to leverage your home's value and improve your overall financial situation.
5. Don’t be fooled by low interest rates
Low interest rates don’t necessarily mean the best deal. There are many of conditions and aspects of mortgages that can benefit or disadvantage you, Here are some things to consider when researching, lenders, mortgage terms and interest rates.
Not all mortgages are the same, even if they have similar rates
Watch out for “Restricted Mortgage Products” that may have hidden terms and conditions
Read the fine print to ensure you’re not committing to a bonafide sales clause (this would require you to sell your home in order to break the contract/term)
Look for flexible mortgage options with reasonable prepayment privileges and penalty calculations, you never know if you may like to use it.
Don’t be lured by rates that seem too good to be true — they probably are.
The best way to make sure you are getting the best rate and finding a mortgage product that works best for your financial situation is to consult your mortgage professional. At Venture Mortgages, we have access to a wide variety of mortgage products and always look to find the best one for you. Let's chat today and strategize how we can better use your mortgage as the financial tool that it is.