Renewing your mortgage might seem simple. Your lender sends you a form, you sign and and send it back. That’s it, you’re done!  

We’re all busy and sometimes this seems like the right choice. After all, now it’s out of your hair and you don’t need to worry about it for another 3-5 years. 

But this can be a costly mistake. 

Here are five key things you MUST consider before locking in that new mortgage term. 

 

1. Are You Ready for Payment Shock?

Anyone who took a 5-year fixed mortgage in 2020 will now be faced with higher rates. 

At the time, fixed rates were around 2.50% at the beginning on the year and dropped to as low as 1.50% by years end. 

Fast forward to today and the lowest 5-year fixed rates range from 3.84% to 4.14%, depending on your situation. 

If you originally borrowed $600,000 at 1.59% with a 25-year amortization, your monthly payment was $2,423.59. When your mortgage renews in 2025, you would owe $498,215.20. 

Assuming you’re eligible for today’s lowest fixed rate at 3.84%, your payment would jump to $2,969.35 based on 20 years remaining. 

That’s an increase of $545.76. 

This is something that you must be both mentally and financially prepared for. 

 

2. What is More Important to You: A Lower Rate or a Lower Payment? 

When I ask this question, many will answer ‘both’. But we need to know your preference so we can tailor a strategy that’s best suited to your goals. This is why you need to prioritize: 

  • A lower rate means less interest over time.
  • A lower payment means more cash flow month-to-month.

If your top priority is cash flow, then the payment can be lowered by increasing your amortization, which can be done up to a maximum of 30 years. This would involve refinancing your mortgage, which can have a rate as low as 4.04% in today’s market. 

Using the above example where you owed $498,215.20 at renewal time, this would bring your monthly payment down to $2,380.40. That’s $43.19 less per month than your original payment at the rate of 1.59% or $588.95 lower than it would be if you simply renewed your mortgage. 

Some think, “but I don’t want to take 30 years to pay off my mortgage!”  

But a 30 year amortization doesn’t have to mean it will take you 30 years to become mortgage free as I explain in my blog on Why Your Initial Amortization is Irrelevant. 

 

3. Do You Need to Borrow More? 

Mortgage renewals are the ideal time to draw on the equity in your home if needed.  

  • Are you considering any renovations over the next few years? 
  • Do you have any high interest debt that you would like to consolidate?  
  • Any investments you would like to make? 

If so, now is the time to address this. 

A mortgage will generally have the lowest borrowing cost compared with other borrowing options. 

If you have accumulated an uncomfortable amount of debt, then now is the perfect time to improve your financial situation and put you ahead of the game. Credit card interest is often 19.99% or even higher. What’s unfortunate is that many will continue the uphill battle of trying to pay off a high balance on a high interest credit card. 

Adding debt to your mortgage does not have to mean that you’re just stretching it out over a longer period. At PMT, we’ll put a strategy together eliminate the additional debt faster… while leaving you paying less interest at the same time. 

 

4. What are Your Short-Team Life Goals? 

It’s amazing how many people just renew their mortgages or put all their effort into finding the lowest rate. But this is putting your focus in the wrong place which can be a costly trap. It’s important to be conscious of your plans before deciding. 

  • Are you looking to purchase an investment property in the future? 
  • Planning on buying a new home? 
  • Expand your family? 
  • Relationship status uncertain? 

These are all points that need to be taken into consideration before making a move. If looking to purchase an investment property (or turn your current home into one), then you may want to refinance to reduce your mortgage payments. The lower your payments, the more buying power you’ll have on the new purchase. 

If planning on expanding your family, then you may want to look at reducing your mortgage payments now to prepare for the added expense involved with having kids. 

If your relationship status is uncertain, then perhaps choosing a 5-year fixed rate with a high penalty lender may not your best course of action. 

Buying a new home? We need to consider a lender with more flexible terms and conditions that will position you for maximum savings during the transition. 

It’s always important to consider your goals to ensure your new mortgage aligns with them. Otherwise, you could find yourself in a costly situation. 

 

5. Can You Get a Better Deal Elsewhere? 

While renewing your mortgage with your current lender is the easiest option, it can also be costly. Mortgage lenders do not always put their best foot forward when it comes to your mortgage renewal and will often offer higher rates than what are available elsewhere. 

It only takes a moment to do a quick Google search… or better yet, reach out to us to find out the lowest rates you’ll be eligible for. Remember, just because you see a rate online doesn’t necessarily mean that you’ll be eligible for it. 

Saving people money at renewal is something we do best at PMT!  We’re serious about saving you as much money as possible. 

It’s best to start this process 90 to 120 days before your renewal date. Just keep in mind that rates can always change in either direction. If rates increase, then starting the process early will protect you against rising rates. If rates drop, then we’ll still get your rate lowered for you… often right up until the week before your renewal date. We can even move you to a different lender if needed, providing there is enough time to do so. It doesn’t matter if you’ve already signed the renewal documents, you can still make the move. 

 

Final Thoughts 

There is a lot to consider before renewing your mortgage. There is a lot more to a mortgage than just rate, which is why I’m continually saying that choosing a mortgage based on rate alone can be a costly mistake. There are many moving parts when it comes to mortgages, and there are literally thousands of combinations and possible scenarios. 

At PMT Mortgage, we’ll advise you based on your specific situation and on what’s truly in your best interest. If it makes the most sense for you to renew with your current lender or to pursue another option, we’ll be the first to tell you. We’re interested in being your trusted mortgage advisors for life…and not just on one specific mortgage transaction. It’s this level of transparency that has led to our more than 750 5-star reviews on Google and why 90% of our business is from repeat clients and referrals. 

Let’s find you the best mortgage solution for your specific needs.