Mortgage Renewal and Educating Yourself
We believe Informed Consumers Make Better decisions
Educate Yourself
Mortgage renewal and educating yourself, there are so many questions. There is information overload and it can be daunting. Where is the economy at and where is it going? We don’t have a crystal ball, but here are some tips if you have a mortgage renewal coming up.
Why education matters; we believe that informed consumers make better decisions.
- Do I have to requalify?
- Variable rate or fixed rate?
- What term should I take?
- How much are my payments going to increase?
Five things to consider when renewing your mortgage:
What the economists are saying:
Benjamin Tal, CIBC Economist:
“Things are moving in the right direction, but not good enough – therefore, we keep the option to raise again open”, “They’re not going to commit to not raising interest rates anymore. [That’s] no big surprise – they don’t want to be seen as relaxed about inflation.” “The short answer is, we don’t know. It’s really 50/50.”
Stephen Brown, Capital Economics:
“The Bank of Canada accompanied its decision to leave interest rates unchanged with a pledge to hike again if needed, but we doubt it will need to follow through. With recession risks rising and labour market conditions loosening, we continue to think that the bank’s next move will be a rate cut, in early 2024”
Earl Davis, head of fixed income and money markets at BMO Global Asset Management:
“We didn’t anticipate a hike today [Sept 6th] there’s two more meetings before the end of the year, we anticipate they’re going to hike it once minimum.”
Changes to Consider
Lender
Switch/Transfer your mortgage to a new lender (at their cost). Most lenders will help pay the costs associated with moving your mortgage at renewal. To be eligible for a transfer program, you cannot increase your mortgage amount at this time. Everything is the same except the lender.
Now is the time to consider any of those upcoming changes that may require money in the coming years. Does it make sense to take equity out of your home?
Extend you amortization
Increasing your amortization period helps provide payment relief by spreading payments out over a longer timeframe.
Type of mortgage
Should you consider a fixed or variable mortgage? Would you want to look at removing co-signers who may not be needed any longer?
Look at the big picture
What is coming up in the next five years?
- downsizing
- expanding your family
- moving closer to family
- major renovation
- kids education
- help adult kids with housing
- buy rental property/vacation property
- dream vacation
Avoid Payment Shock
Get an idea of what your payments will be at renewal. You could start practicing making higher payments now, to relieve some pain at renewal! Why not get the budget book out. If you have the funds to make a lump sum payment, this will help reduce interest paid, and monthly payments. You could also consider paying off some debt to free up monthly cashflow. Whatever you do don’t take on any new payments.
Interest Rates
Bank of Canada (BOC) sets its policy interest rate (overnight rate) to control inflation. They raised rates 10x since March 2022 (+4.75%) this impacts variable interest rate products. The last meeting on September 6, 2023 the rate was held at 5%. The BOC’s next meeting is October 25, 2023.
Fixed mortgage interest rates are not directly linked to Bank of Canada Rates. The fixed rates follow bond yield. Fixed rates increased roughly 2.25% since March 2022.
Requalifying 101
You can refinance up to 80% of the value of your home.
Income qualification – documents and questions will be required (no blood sample required). Stress Test – you will qualify at 2% above your mortgage interest rate. A Lawyer/Notary could be needed and an appraisal is likely.
Renewing with you lender
- If you’ve made all your payments on time, your existing lender will generally give you the option to renew your mortgage.
- Avoid requalifying – if you are not increasing your mortgage amount, amortization, or making a change to who’s on the mortgage.
- No cost – there shouldn’t be any legal fees, appraisals, or income documents to provide.
- Can be as easy as signing the dotted line. There is a bit more involved, but the most straight forward option.
Options
Terms – Lenders usually automatically offer a 5 year fixed term. Consider a shorter term or a variable rate.
Early Renewal – Most lenders offer early renewal options – up to six months early
Rate Holds – Inquire with your lender about how long they will honour a rate hold.
We believe that informed consumers make better decisions. To discuss your upcoming renewal, or any mortgage situation call Kevin, Jason or Blaire today!
DollarWise Mortgage Experts Blog Post
