Do's and Don'ts of Mortgage Renewal: What You Need to Know
- oceanelmortgages
- Jan 29
- 4 min read
Mortgage renewal can feel overwhelming, but understanding the process and knowing your options can empower you to make the right decisions. As your mortgage term ends, the choices you make will affect your financial future for years to come. Many homeowners miss opportunities to secure better rates and terms simply because they do not prepare properly. Let’s explore what you need to consider when renewing your mortgage.
What Does Mortgage Renewal Mean?
Mortgage renewal happens when your loan term ends, which can range from 6 months to 5 years or more. At that point, you can either pay off the remaining balance or renew your mortgage for another term. Interestingly, an estimated 70% of homeowners will renew at least once before fully paying off their mortgage. Each renewal represents a chance to re-evaluate your financial situation and make necessary adjustments.
Your Renewal Statement
About 21 days before your mortgage term expires, you will receive a renewal statement from your lender. This important document includes:
Your mortgage balance
The interest rate for the new term
Payment frequency and duration of the new term
Any applicable fees or charges
If your lender plans not to renew your mortgage, they are required to inform you in this same timeframe, allowing you to explore other options well in advance.
Review Your Mortgage Needs
As your renewal date approaches, assess your current financial situation and mortgage needs. Think about whether you can comfortably increase your monthly payments to pay down your mortgage faster. For example, increasing your payments by just $100 a month could save you thousands in interest over the term. Also, consider the frequency of your payments—monthly, bi-weekly, or weekly—which can influence overall interest costs. If you have high-interest debts, it might be wise to consolidate those into your mortgage for potentially better rates.
Shopping Around for Better Deals
You're not locked into your current lender when your mortgage term ends. Make the effort to compare options well in advance—ideally, three to six months before your term ends. By researching multiple lenders, you can find competitive rates. For instance, switching from a 3.5% interest rate to one at 3.0% could save you nearly $30,000 over 25 years for a $300,000 mortgage. Take the time to evaluate various options to find the best fit for your finances.
Negotiating a Better Rate
Don't hesitate to negotiate with your current lender. If you find better rates elsewhere, present that information to your lender. Many lenders would rather adjust their rates than lose you as a customer. Even securing a mere 0.5% reduction in your rate can yield significant savings over time—potentially thousands of dollars.
Switching Lenders
If you choose to switch lenders, be aware that this can come with added costs. Expect potential fees such as appraisal costs, transfer fees, and other administrative charges. Always ask your new lender if they will cover any of these expenses to help make the transition easier. Some lenders will offer incentives to attract new clients, so take advantage of these offers.
Collateral Charges
If your original mortgage has a collateral charge, switching lenders may be a bit complicated. You might face extra costs to remove and re-register this charge. Familiarize yourself with these potential expenses as you consider changing lenders. If you know what to expect, you can better manage your budget during the transition.
Do's of Mortgage Renewal
Do Evaluate Your Financial Situation: Always take time to understand your complete financial landscape before making a renewal decision. Review your income and expenses as they relate to your mortgage.
Do Understand the Terms: Take a close look at the terms in your renewal statement. Knowing what you are signing up for will empower you to negotiate effectively.
Do Talk to a Mortgage Broker: If you feel lost, consult a mortgage broker for guidance. They can provide tailored insights and help you navigate various options.
Do Plan Ahead: Start your planning process well before your renewal date. This proactive approach increases your chances of securing better rates and terms.
Don’ts of Mortgage Renewal
Don't Rush Your Decision: Give yourself ample time to consider your options. Rushing could lead you to miss out on better deals.
Don't Ignore the Fine Print: Always scrutinize all fees and charges in your renewal statement. Hidden costs can lead to unfortunate surprises later.
Don't Become Complacent: Just because you have been with your lender for a long time does not mean they are still your best option. Exploring other lenders is vital to getting the best rate.
Don't Forget to Ask Questions: If there's anything unclear in your renewal statement, reach out to your lender for clarification. Being informed gives you more power in negotiations.
Final Thoughts
Renewing your mortgage does not have to be a stressful experience. With the right preparation and understanding of your options, you can make informed decisions that align with your financial goals. Whether you stay with your current lender or explore new ones, knowing the mortgage renewal process can help you achieve a better outcome.
By following these do's and don'ts, you can transform what might seem like a complex decision into a positive opportunity. Stay informed and proactive, and you will be in control as you navigate your mortgage renewal.
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This information is based on insights from FCAC
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