If you are amongst the majority of Canadians who have a fixed rate mortgage, at some point you will be faced with a mortgage renewal at the end of your fixed term, with actions you will need to take and repeat several times before your mortgage is completely paid off. With each mortgage renewal comes an opportunity to re-assess your needs and to see if you can take advantage of equity or interest rates before you lock in for another fixed number of years.
Here is a checklist of factors you should consider at every mortgage renewal:
- What INTEREST RATE are you being offered to renew at your current mortgage provider? Is there another institution who is willing to give you a better rate?
- Should you renew into another FIXED rate or switch to a VARIABLE rate? What about an OPEN vs. CLOSED mortgage? This will depend on the current economic outlook and forecast for the direction of interest rates so it is important to discuss this with your mortgage broker before renewing.
- How many more years of AMORTIZATION are remaining in the mortgage? If your income or financial situation has changed, you may want to consider extending the amortization in order to reduce payments, or shortening the amortization to pay off the mortgage faster to reduce interest costs.
- What is your current payment FREQUENCY? Is this something that you want to amend to better suit your current financial needs? Increasing the payment frequency can help pay down the mortgage faster and reduce interest costs.
- Are you in the position to make a LUMP SUM PAYMENT? Making this extra payment upon renewal will mean that you renew at a lower principal amount which may help to better the mortgage rate/term that you are being offered upon renewal.
- There may be a great opportunity to REFINANCE to consolidate other personal debt that you have (ie. Credit card debt that is being charged at a much higher interest rate), or finance a major home renovation project. You would need to qualify for the higher mortgage amount and be subject to stress tests that may not have been in place during your original mortgage approval, so be sure to speak to your mortgage broker about your options. Legal fees will apply as well.
- If you have MORTGAGE INSURANCE, this is a great time to assess whether the coverage still suits your needs or if you want to add onto your coverage (as it will often include life, critical illness or disability components and your situation might be different now than it was when you added the insurance coverage). If you don’t have insurance coverage, then this would be a good time to consider it.
- Is your current lender offering any PERKS OR BENEFITS to keeping your mortgage with them? What about other institutions – are they offering any perks or benefits to having you transfer your mortgage over to them?
- If you have built up significant equity, you may be eligible for a HOME EQUITY LINE OF CREDIT. You can use these funds for more flexibility in managing your finances or it could help to partially fund other purchases like an investment property. Similar to a refinance, legal fees may apply.
Lastly, if you are thinking about potentially selling your property, make a plan to discuss with your realtor as well – your mortgage renewal may have a financial impact to the timing of your sale. It might also be a good time to obtain a market valuation on your home as well – knowing what your home is worth might help you with some of the choices and decisions you will have to make. Don’t just sign the paperwork you receive without looking into whether certain changes can benefit you overall.
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