It has now been 5 years since you purchased your home, congratulations it’s time to renew your mortgage. This is the reality for the majority of Canadian homeowners.
You start out with a 25 year mortgage with a 5 year variable or fixed interest rate.
There are many aspects of home ownership that can truly be nerve racking, and this for me was one of them. My rate at the time was 2.59% fixed over a 5 year term. You have a few options when you get to this point
- Automatically renew your mortgage with the same lender: Closer to the end of the term, your lender will send you a notification of mortgage renewal with terms for renewal. In my experience, the lender offered exactly the same rate I had before for an additional 5 years. Usually, your lender is counting on the fact that you aren’t interested in the hassle of trying to requaliy with a different lender, and that you are already comfortable with your regular mortgage payments. My advice, ensure you’re not leaving money on the table.
- Negotiate a better rate with the same lender: It is most likely that the first rate that your lender offers you is not the best rate, and they typically want to keep your mortgage on their books. This leaves you with the opportunity to negotiate for a better rate. But don’t go in blindly asking for a random interest rate, do your research. You can easily find information about estimated rates and “best” rates online on websites like ratehub or other similar ones. Just google it.
With the knowledge of the best rate in hand, you can call your lender and let them know what rate you are hoping to get. They will let you know if that is something they are willing to offer or not. Remember, they will prefer to keep you on their books for another 5 years. Another tool you can use for negotiation is to shop around and get an offer from a different lender. This leads to your third option
- Shop around for better rates: It is no secret that every lender is looking for an opportunity to also expand their portfolio, so they will be looking to entice you. Before your current term is due – i’d say about 2 months before, connect with a mortgage broker and let them know your mortgage renewal is coming up soon, and you are looking for a better rate. They will want to know your current interest rate and you will be in a better position if you have done your own research (online) to know “best rates” available – as in option 2 above. Quick plug for mortgage brokers out there: The benefit I have found in working with a mortgage broker is that they typically have access to multiple lenders to get you the best rate and terms. Also, they only have to pull your credit once to access multiple lenders. The alternative will be for you to go to each of these lenders yourself one after another, they will each want to pull your credit which negatively impacts your credit score.
Whether you use a broker or go to lenders directly, you will be in a better position if you know what options are out there and not accept the first offer you receive.
In my case, we used option 2 and 3 and ended up renewing with the same lender, but with a much better rate than they initially offered. Some other benefits of staying with the same lender include No discharge fee, No appraisal costs, No requalification required, No lawyer costs, No income documents required. Our new term was a 5 year variable rate at 1.85%.