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How to complete your mortgage renewal

Renew mortgage. Couple Facing Debt Problems, Not Able To Pay Out Their Mortgage.

For the vast majority of homeowners — approximately 6-million of the 9.1-million mortgage holders — there will come a time when you will have to renew your mortgage. 

Many mortgage-holders will wait for a renewal notice from their bank before considering what to do and, quite often, many simply sign this contract, without shopping around for the best mortgage renewal deal. 

This is a mistake.

Just like when you first got your mortgage, you can save tens of thousands just by making a few phone calls or filling in a few online forms. The idea is to find the best terms at the best rate. 

The good news is that lenders, mortgage brokers and agents are accustomed to mortgage renewal inquiries, since most mortgages need to be renewed at least once before the debt is completely paid off. 

What is a mortgage? A mortgage is a loan from a financial institution that helps a buyer purchase property. A mortgage helps a buyer purchase a property without having to pay the entire sum, all at once. If the homeowner fails to make their payments it can result in a mortgage default. If this happens, the lender can pursue legal action to repossess (known as foreclosure) and sell the property in order to recoup the money owed.

What is a conventional mortgage? A mortgage loan where the buyer contributes 20% or more of the purchase of the price to buy the home

What is a high-loan-to-value mortgage? A property purchase where the buyer puts provides less than 20% of the purchase price as a down payment will require a mortgage that is known as high-loan-to-value (LTV). To qualify for an LTV loan, the buyer will be required to pay for the lender’s mortgage loan default insurance — also known as CMHC fees — which protects the lender’s potential loss should the buyer default on the mortgage. 

What is a mortgage renewal? A process of taking the outstanding balance owed on your mortgage debt and renegotiating the contract under new terms. A mortgage renewal can simply roll the debt into a new contract with the same lender, or it can be a new contract with a new lender. 

To help you get the best deal, follow these six steps: 

Step #1: Know your dates

renew mortgage maturity dates

By law, federally regulated lenders, such as banks, must provide you with a renewal statement at least 21 days before your mortgage term expires. (Provincially regulated lenders, such as credit unions, follow a similar mandate.)

In this notice, the lender must tell you: 

  • The maturity date (the day your current mortgage contract expires and a new contract must be negotiated);
  • Total outstanding debt as of the maturity date; 
  • The current and proposed interest rate; 
  • The payment frequency; 
  • The new term length;
  • Any charges or fees that apply for the renewal of this mortgage contract. 

However, you can start your renewal inquiry process as early as four months before the renewal date. 

For those who want to be proactive (and those who anticipate rate increases) starting early can help you lock-in the best rates. That’s because any offer provided by a lender will come with the guarantee that the mortgage rate won’t increase until after your scheduled renewal date. 

Step #2: Review your needs

mortgage renewal or refinance

Before signing anything, it’s time to do a bit of soul searching and budget review. 

What are your needs? When you first got this mortgage, you may have earned less, needed to stretch your dollar more, or not required some lump-sum money (say for a roof repair or a kid’s college education). At renewal time, it’s best to review your current and future financial goals and needs. Why? Because renewal time is the best time to refinance — if necessary. 

The reason renewal is a good time to refinance is because you won’t be dinged with a hefty penalty fee for breaking your mortgage. Since a mortgage renewal is about renegotiating a new contract to pay off your mortgage debt, you are not breaking your mortgage contract, so there are no penalties to pay. That means you can still access the equity in your home — the money you now have access to, based on your home’s overall worth — while locking in the conditions for repaying the overall debt.  

By reviewing your needs, you can determine: total borrowed amount; length of amortization (the total amount of time you agree to pay off this loan); length of current contract (known as the term); mortgage rate, among other payment privileges. 

To help you determine what’s right for you, answer the following questions:

  • Can you safely increase the amount you pay each month, so that you can pay off your mortgage sooner and save on interest charges?
  • Can you take advantage of payment privileges, such as increasing payment frequency, or double-up payments, to help pay off your mortgage more quickly?
  • Do you want to consolidate other debts that have higher interest rates (thereby increasing the amount of your mortgage loan)?
  • Do you require a large, lump-sum payment in the near future (thereby increasing the amount of your mortgage loan)?
  • Do you require specific conditions for repayment, such as the ability to repay a large lump-sum in the near future? Or the option to move the mortgage to another property? 

Knowing what you need in a mortgage should help you form the decision around which lender and product to choose.

Step #3: Comparison shop

banks will self-impose stricter guidelines for HELOCs

This is where you will do the bulk of your work — but it’s worth it. 

For many homeowners, signing with the same lenders appears to be the easiest route. It’s convenient, plus this lender had the best option when you first got the mortgage, so why wouldn’t they offer the best deal now? 

Lender requirements, and goals, change, as do your needs. Perhaps your initial need was to find the cheapest possible rate, but now, you want a mortgage that’s portable (you can move it from one property to another). To get the right mortgage, at the best rate, with terms that work for you, you’ll need to shop around…again. 

Not to worry. Believe it or not, your lender is accustomed to mortgage renewal inquiries, and independent mortgage brokers, who work with various lenders, are also accustomed to homeowners comparison shopping come mortgage renewal time. 

The key is to find a lender agent or independent broker who will take the time to listen to your needs and wants and find you the best product. 

Step #4: Factor in the fees

That dreaded four-letter word: Fees. 

While signing a renewal with your current lender will be a relatively painless and fee-free endeavour, it doesn’t mean you’re getting the best deal. So, if your comparison shopping efforts have found a better offer with another provider, you’ll have to factor in the fees to switch. 

Typically, you’ll be on the hook for a new appraisal fee (a cost that’s between $150 and $500, depending on the size and type of property); you will also have to pay discharge fees, payments to remove your former lender from all paperwork, a cost that ranges from a nominal $5 or $10 fee, to as high as $400, per mortgage contract. 

To factor in the fees, just ask. Ask your agent or broker what it will cost you to move your mortgage; then ask if there are any lenders who are willing to pay these fees for you, in order to get your business. Believe it or not, there are mortgage brokers and mortgage lenders who are willing to cover your fees. It may take a little negotiating, but at the very least, ask.

Step #5: Get a rate hold

Fed Raises Rates news announcement Zolo Detroit Free Press

Once you’ve found the right mortgage contract for you, it’s time to ask for a rate hold. 

Most lenders will let you hold a rate — meaning the rate will not increase —  for at least 30 but sometimes as long as 120 days. Even if mortgage rates do rise during this time, your renewal rate that you previously negotiated, will not go up. 

Now, if rates do drop during this time, you still have the flexibility to negotiate a lower rate, but at least with a rate hold you get some security against rising rates. 

Keep in mind, however, that some lenders won’t offer a rate hold. Quite often, the lenders with the cheapest rates won’t offer rate holds. The reason is that rate-holds produce paperwork and paperwork adds administrative costs. These lenders may also want the flexibility of rising and lowering rates to all mortgage holders, as the market dictates. This doesn’t mean you shouldn’t trust or use this lender; it just means you need to find a lender that will offer a rate hold as a way to lock-in the lowest guaranteed rate prior to renewing your mortgage. 

Step #6: Get it in writing

rate-hold. get it in writing. -avoid rental fraud by using a written contract

Your current lender may provide the renewal statement and your new contract as a paper document, or electronically, say through email. Either way, make sure you have the information in writing — including the proposed mortgage amount, rate and terms. 

What happens if your mortgage renewal is denied?

Being denied a mortgage renewal has different consequences, depending on who denied you and for what reason. 

For instance, if you are denied by a new lender (after submitting an application) but still have your current lender’s renewal form then you can simply opt to renew your mortgage with your current lender. (This is also why is pays to comparison shop early.)

If, however, it was your current lender that denied your mortgage renewal, then you’ll have to start a new mortgage application with a new lender. 

If that new lender also denies you, then you’ll have to start an application with a B-lender: trust companies and institutional lenders that specialize in bad credit. Keep in mind, these lenders will charge higher rates as they know borrowers are coming to them after being turned away by big banks and mono-lenders (A-lenders). 

Now, if a B-lender denies your mortgage application, that’s when you’ll need to talk to a mortgage broker who deals with private lenders. This is when mortgage rates really start to creep up, with some private lenders charging mortgage borrowers double-digits rates, even as prime is slashed to near-nothing. Another, final option, is to sell your home. 

What happens if you don’t renew your mortgage?

The best case scenario is that your mortgage is automatically renewed with your current lender, but in accordance with their terms and rates — and, quite possibly, not the best deal you could get.

The worse case scenario is that your current lender decided not to renew your mortgage and, as soon as the renewal date passes, you will be responsible for paying off the entire sum of the outstanding mortgage debt. Failing to pay the loan will put you in default of the contract and, at that point, your lender could start legal proceedings to repossess the home (to eventually sell as a foreclosure, in order to recoup their money). Even if your renewal date has come and gone, you can prevent the lender from foreclosing on your home by renegotiating a new mortgage contract with a new lender. At this point, however, you probably won’t find the best deal, just try to find a decent deal that you can work with until the next renewal date, or until you can repair any damage to your credit score in order to renegotiate a better mortage contract with another lender.

What happens if I’ve lost my job or damaged my credit score?

Data government collecting foreign buyer data

If you are one of the more than 1-million Canadians who applied for Employment Insurance, as a result of the COVID-19 outbreak, then you know the dilemma: Mortgage is up for renewal and you have no job, no income and, if you can’t pay your current bills, you may even have a damaged credit score. What should you do? 

Turns out, if you’ve lost your job or damaged your credit score, your best option is stay with your current mortgage lender — even if the mortgage renewal that they offer comes with a rate increase. 

While paying more interest on your mortgage debt isn’t great, this strategy helps you avoid going through the application process — a process lenders use to examine your income-to-debt ratios, as well as your creditworthiness. By avoiding this process, you won’t find yourself kicked out of the a-lender (or primary and mono-lender) pool of mortgage providers — the group that offers the best rates. 

What happens when you owe less than $100,000 on a mortgage?

Congratulations! You’re in the home-stretch of paying off your mortgage debt! While this accomplishment should be celebrated, don’t expect red-carpet treatment from lenders. First, don’t expect fees to be waived or absorbed by a new lender, should you opt to apply for a new mortgage. Also, don’t expect to get the best rates! At this point, you’d be wise to talk to a mortgage broker who can walk you through the current mortgage options and your overall options for getting the best rate, while paying off this debt quickly. 

Bottom Line

Mortgage contracts, insurance and dental surgery: Three once-and-awhile incidents that we all tend to dread. Still, when it comes to mortgage renewal time, your best option is to start early and to shop around. 

Quite often, this process will show you that you can save tens of thousands just by switching to a new mortgage provider. 

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Romana King

Romana King is an award-winning personal finance writer, real estate expert and the current Director of Content at Zolo. Romana has contributed to business and lifestyle publications including CBC.ca, Toronto Sun, Maclean’s, MoneySense, Globe & Mail Custom Content Team, and The Toronto Star. Among her achievements, Romana won silver for her annual Where to Buy Now real estate package in the 2019 Canadian Online Publishing Awards. In 2015, she won a SABEW Business Journalism award. When she was editor of CI Top Broker, Romana helped guide her team to obtain its first KRW Business Journalism nomination, and in 2011, she was part of a small team that helped MoneySense win Magazine of the Year at the 34th annual National Magazine Awards.