You have a mortgage and now it’s time to renew. What do you need to do next? This article shares key questions to ask in order to confidently navigate your next mortgage term.
So you’re a proud homeowner, and understand all of the hard and rewarding work that comes with that joy and responsibility. Whether you’re in your first home or you’ve been in the market for some time, homeownership is a journey and one of life’s most rewarding investment opportunities.
At some point (most often five years down the road, depending on the term of your mortgage), you’ll be required to renew your mortgage. Unlike the “auto-renew” options that we’ve become so accustomed to in our busy lives, taking the time to understand the mortgage renewal process, being proactive and asking the right questions will help you re-new with confidence.
Understanding all the terms and options isn’t always easy, but we’re here to help. Let’s start with these 10 must-ask mortgage renewal questions.
Has my life situation changed since the start of the term?
Addressing this question is a good first step to determine the best mortgage renewal option for you. Perhaps your household income has increased, which might give you more flexibility when it comes to what you can afford for mortgage payments.
On the other hand, you may have experienced a job loss, illness, started a family or committed to home renovations. With those scenarios, you might be looking to secure a manageable payment schedule at a fixed rate. Understanding your current situation will help you better navigate your mortgage renewal options.
What’s the difference between a mortgage amortization and term?
Some people are surprised when their mortgage comes up for renewal, as when they purchase their home, they’re focused on the 15, 25 or 30 year horizon it often takes to pay it all off. This is what we call amortization – the number of years it will take to pay off your mortgage.
A term is the length of your current mortgage loan agreement. The most common term length is five years, and the end of your term is called your “maturity date”.
What are my options at the end of my mortgage term?
At the end of your term, you’ll have the option to pay off your balance or renew for another term. When you renew, there are a number of factors to consider as you figure out the best type and term of mortgage for you.
What’s the difference between a closed and open term mortgage?
Simply put, a closed term offers fewer options in terms of paying down or paying off your mortgage early or switching lenders. It may offer a lower interest rate, but you get less flexibility.
On the other hand, an open term means you can make additional payments of any amount, including paying off your mortgage in full, whenever you want. You get more flexibility, but you generally will have to pay slightly higher rates.
How long of a term should I go for? Is a longer mortgage term always better?
There are a lot of factors that contribute to interest rates and how they adjust with the rate of the term. What’s right for you might not be right for your neighbour. Consider factors such as whether you’re planning on potentially paying off your mortgage early, interest rate forecasts, the best rates available and possible life changes in your own future. Discussing your personal situation with your banker is a good first step to make a decision about the length of your term.
What are the pros and cons of fixed vs. variable rates?
A fixed rate means the interest rate and payment stay exactly the same to the end of your term, no matter what’s happening in the markets. If you’re on a budget, fixed rates can provide security.
Variable rates adjust with prime lending rates, which means that if rates go down, you’re able to pay down your mortgage faster. That said, variable rates can leave you open to some risk, as you could pay more interest if the prime lending rate increases.
Someone in my household has lost their job. Can my mortgage renewal be declined?
In short, yes, your mortgage renewal can be declined. However, there are a number of options that can be considered as you navigate a mortgage renewal with a lower household budget:
- Consider downsizing your property to a more manageable mortgage payment
- Re-allocating / adjusting your household budget to comfortably make mortgage payments
- Discuss options with your banker to defer your payment(s).
- Talk to your banker about options around the term of your mortgage, which could help make your monthly payments more affordable.
I received an inheritance and would like to use some of it to pay down my home. How should I factor that into my mortgage renewal?
If you anticipate an influx of cash, a promotion or a big bonus, you may want to consider an open term mortgage, which offers extra flexibility to pay down or pay off your mortgage. That said, some closed term mortgages often provide the option of paying up to 20% of your original principal amount of your mortgage each year without penalty.
What if I plan on selling my home at some point during the term?
Whether it be moving into a larger space, finding the perfect home in your dream neighbourhood, or relocating your family, situations arise where you may choose to sell your home at some point during your term. Mortgages offer the flexibility of blending, extending or porting your mortgage.
Blending and extending a fixed rate mortgage lets you buy another home and refinance prior to your maturity date without paying a prepayment penalty. You can also take your mortgage with you, which is called a portable mortgage. Provided you qualify for the mortgage on your new home, you can transfer your mortgage over with the same terms as your existing one.
How early can I lock in a new mortgage term?
You can commit to a new term 90 days before your term matures. So, you may want to consider evaluating your current situation, interest rates and book a discussion with your banker roughly 120 days before your mortgage matures. That will give you plenty of time to consider your options, and lock in the mortgage term that works for you.