Are you one of the many Canadians who mortgage is up for renewal soon? Home ownership is often the single largest purchase one makes in a lifetime, which is why it’s important that you do the homework and make sure your current or next mortgage term is custom-built to meet your specific needs, especially during these uncertain times.
Whether you’re looking for ways to reduce interest rates or searching for a new lender, here are three things you should consider before renewing your mortgage during this period of economic upheaval.
Review your budget
At the end of your mortgage term, you will be asked to either pay off your mortgage loan entirely or renew. This is a good time to determine which option works best for you by asking the following:
- Are you able to pay off your loan in full?
- Are you willing to increase your payments to pay off your mortgage faster?
- Do you need to increase the amount of your mortgage to consolidate other debts, or refinance your mortgage to lower your expenses or access additional funds?
- Are you satisfied with your current lender?
- Do you need to update lending terms to ensure you’re covered in case of an emergency (critical illness, unemployment, etc.)?
By asking yourself these important questions, you will be able to renegotiate the terms of your loan, term length, and interest rate with a contract that best suits your current financial needs.
How can you take advantage of your upcoming mortgage renewal?
A renewal allows you to make changes to your mortgage without paying any penalties, which would have normally been incurred had you decided to make any mid-term adjustments. Although re-signing with your current lender might be the easiest option, it might not be the best one for you. Choosing a loan with a slightly lower interest rate can save you thousands in the long run.
Decide between fixed rate vs. variable rate mortgage
Most studies suggest that choosing a variable interest rate will save you money over the course of a 20-30 year mortgage. During the COVID-19 crisis, interest rates are dropping (the Bank of Canada’s key rate now at 0.25%), which also makes variable attractive. However, with economic and job insecurity at an all-time high, you might prefer the stability that comes with a fixed rate and knowing exactly what your mortgage payment will be every month.
Shopping around for a mortgage is the perfect way to ensure that your next mortgage term matches your current economic situation, which might have changed from when you initially started your mortgage.
To maximize all available options, we recommend that you start shopping around a few months before the end of your mortgage term. This will allow you to have enough time to contact various lenders and brokers to see if there are better options. Beyond looking at rates, be sure to see if the mortgage is portable and any transfer costs you may incur. This research will also help you get a good grasp of the current market, so you can negotiate a better interest rate, especially if you plan on staying with your current lender.
When it comes to your mortgage, it is important to make sure that you’re getting the most out of your loan. Find out how Moya Financial can help you save on your mortgage.