Overview of Mortgage Renewals in Barrie
Every mortgage agreement has a term, with the average being around five years. When that term is up you have three choices:
- Pay off the mortgage
- Renew it for another term
- Switch to another lender
The end of your mortgage term is usually a good time to reassess your financial situation, and look at your mortgage options more carefully. During the average five year term most people’s financial circumstances will change and you may find yourself in a better place financially. Either way, taking the mortgage renewal offered by your current lender is probably not your best option.
Many people just renew their mortgage, instead of switching, because it is easy. Simply sign the new term agreement and that’s it. Lenders do not usually offer their best rate on renewals because they know people will accept the offer, even if better rates are available. Switching your mortgage to a new lender will mean reapplying and qualifying just like when the original mortgage was taken out.
On a typical $250,000 mortgage the savings going from a 3.5% renewal rate to a 3% switch rate is $3,904 based on a 5 year term with a 25 year amortization. The question is whether the almost four thousand dollars in savings is worth it – most would agree it is, but still don’t bother. (Scotiabank‘s mortgage comparison tool was used for the above example, you can find it HERE).
In the event you do not want to renew your mortgage “as is”, you will generally have to re qualify anyway even with your current lender.
What to expect for your current lender
If your current mortgage is with a federally regulated financial institution such as a bank, you will be provided with a renewal statement no later than 21 days before your existing term ends. This statement will contain the balance of principal remaining on the renewal date, interest rate being charged, payment frequency, term, and any additional fees. Generall when these mortgage statements are sent out, a renewal agreement is also attached. In the event that your lender does not want to renew your mortgage, they must notify you 21 days before your current term ends.
When to start thinking about your mortgage renewal
Unless saving money isn’t important to you, starting to look at your mortgage options should be done a couple of months before the renewal date. If you are switching, it will take time to process the application and process all of the paperwork required.
Mortgage Renewal Options
Mortgage renewal with your current lender
Just because you have decided to renew with your current lender, doesn’t mean you have to take what they first offer you. If you financial situation has improved you may want to reduce the remaining amortization period. Reducing the amortization period or switching to accelerated bi-weekly payments can save thousands in interest. Other things to consider are the interest rate being charged, and pre-payment options. If the lender offers you a better rate, make sure it is not a “no frills” type of mortgage – these can be very costly to get out of should that become necessary.
Switching to another mortgage lender
You are not required to renew your mortgage with the original lender, and can move your financing to a lender that offers better terms and conditions. The downside of moving your mortgage, as opposed to renewing it, is that you will have to re-qualify for the new mortgage. There are also other costs to consider such as appraisals and legal fees when changing lenders. The savings on mortgages, with a smaller balance owing, my not warrant the additional cost and aggravation involved with switching. You can also ask that the new lender cover some of the fees involved – so will depending on the mortgage amount and term.
If you decide to switch lenders, it is always a good idea to shop around for the best deal on your new mortgage. The lowest rate is not always the best deal as it will often lock you in with no prepayment privileges, and outrageous fees should you need or want to get out of the mortgage. Below is the contact information for the larger lenders.
- ATB Financial: 1-800-332-8383
- BMO: 1-877-225-5266
- CIBC: 1-888-264-6843
- First National: 1-888-488-0794
- FirstLine: 1-800-970-0700
- Home Trust: 1-877-903-2133
- HSBC: 1-888-310-4722
- ING DIRECT Canada: 1-866-700-9836
- Laurentian: 1-800-252-1846
- MacQuarie: 1-877-462-3788
- MCAP: 1-800-265-2624
- National Bank: 1-888-483-5628
- PC Financial: 1-888-236-6362
- RBC: 1-800-769-2511
- Resmor/RMG: 1-866-809-5800
- Scotiabank: 1-888-990-9923
- TD: 1-800-722-3098
The two methods for calculating penalties commonly used for paying out a mortgage are:
- Three month’s interest – an amount equal to three month interest on your outstanding mortgage balance.
- Interest rate differential (IRD) – an amount based on the difference between the current posted interest rates and the rate you are currently paying. Basically if mortgage interest rates have come down the bank will want to recover some of the money they are losing. Also note your current rate is probably discounted and the bank will use the posted rate at the time you got your mortgage for the calculations. The discount will be on your mortgage documents. Since various banks calculate IRDs differently, it is best to just call them rather than use an online calculator. Addition legal and administrative costs will also be added in both methods (150-450 dollars, very approximate).
If you want to try out Scotiabank’s prepayment calculator you can find it HERE. I have double checked with the bank and the numbers were off a bit.
When switching you should note that not all lenders deal directly with the borrower. Quite often these are the lenders with the best rates, and only deal with mortgage brokers. Mortgage brokers generally do not charge fees for their services unless the funds being borrowed are private, or the mortgage is commercial. Instead, they usually receive a commission from the lender when they arrange the mortgage funding.
To get a list of mortgage brokers in the Barrie area, visit the website of the Canadian Association of Accredited Mortgage Professionals, or you call CAAMP at 1-888-442-4625.
Mortgage brokers are also provincially regulated. If you would like to confirm that a broker or agent is licensed in Ontario, you can check on the Financial Services Commission of Ontario’s website HERE.
Reducing prepayment charges
Since charges are based on the principal balance owing, taking advantage of prepayment privileges can reduce the fees charged. Most mortgages have a yearly prepayment allowance of at least 15% without penalty. This can reduce the fees you pay if you have the funds available to utilizes this. This prepayment privilege is based on the original mortgage amount and not the balance owing – it cannot be made on the same day the mortgage is paid out.
Blend-and-Extend mortgage option
Most mortgage lenders will allow this option as an alternative to losing you as a customer. As the name suggests, the new mortgage is partially blended with the old mortgage, and uses a blended interest rate. Depending on when this option is exercised, there may be penalties and administration fees involved here too. This option is only available if you stay with your current lender and may not make sense depending on the prepayment charges. If these charges are the same as switching, it would be best to go with the lowest interest rate instead of a blended one.
It is best to consult with both your current lender and a mortgage professional in Barrie to see which scenarios would benefit you the most.