One of the biggest mistakes that people make when their mortgage is coming up for renewal is to re-sign with their current lender without looking into other options. It’s super easy as you just need to sign the form and send it back to the bank.

That’s it, you’re done!  Mortgage renewed! 

But this can be a costly mistake.

While there are times when some mortgage lenders will offer competitive rates right out of the gate, it’s more often that another lender will be more competitive. In some cases, much more.

We all lead busy lives, so we are often drawn to following the path of least resistance. This is why some people will sign the renewal form and send it back to their lender without giving it a second thought.

Mortgage lenders know this, which is why they won’t always offer competitive rates when it’s time to renew. 

Sure, signing the form and sending it back to your lender is easy, but this can potentially lead to thousands of dollars in additional costs. 

 

Renewing Vs. Switching

Some lenders may try to push the envelope with their renewal offer and I’ve seen some banks try to renew people at their posted rates, which can be as much as 2.00% higher than the lowest discounted rates available. Sometimes even higher. 

This represents a cost difference of roughly $10,000 for every $100,000 you owe. On a $500,000 this would mean a difference of roughly $50,000 over the 5 year term! 

It’s rare to see this large of a rate difference but I’ve seen it happen. In most cases, the rate difference is around 0.25 – 0.35%.  This represents a difference of roughly $1,250 to $1,775 over the term for every $100,000 you owe, or $6,250 to $8,875 on a $500,000 mortgage*

Don’t get me wrong, while it’s common to save by switching to a different lender, it’s also not unusual for a lender to offer a competitive renewal rate, or something similar to what you can get by switching. If the offer from your lender is similar, then simply renewing would be the best option based on rate alone. But even that can be a mistake as not all mortgages are created equal. My blog on the Best Rate Vs. The Best Mortgage explains why going with the lowest rate is not always the best choice.

 

Costs to Switch Your Mortgage

In the majority of cases, the lender will cover your legal and appraisal fees when switching your mortgage to them. The discharge fee charged by your current lender will be added to your mortgage balance. You also have the option to pay this out of pocket if you prefer. Discharge fees can range anywhere from 0-$450 depending on the province and lender. In Ontario, the fee is usually around $300 – $350 in most cases. In BC it’s usually only $75, while in Alberta there is usually no discharge fee at all. There is also a government fee which is roughly $80.

If you have a mortgage that was registered as a collateral charge, then the legal and appraisal fees may apply, however it may still be possible to get these covered for you. You can read more about this in my blog on Everything You Need To Know About Collateral Mortgages.

 

Switching Mid-Term

If your current mortgage rate is higher than what is available today then it may make sense to switch your mortgage in the middle of your term. As fixed rates are currently the highest they have been in 12 years, it’s not likely that your current fixed rate is higher than today’s lowest mortgage rates.

But there are some who might be in a variable rate mortgage with a smaller discount than what can be found today. Variable rate discounts for owner occupied properties currently range from prime -1.25% (currently 2.45%) to prime -0.65% (currently 3.05%) depending on your situation.

If switching in the middle of your term then the standard mortgage penalties will apply. Most lenders will allow you to include up to $3,000 of the penalty/costs into the new mortgage. Anything above this amount would need to be paid out of pocket at closing. We would advise you on the expected costs and would run the numbers to determine if it makes financial sense to proceed with a mid-term switch. 

 

When To Renew Your Mortgage

Most lenders will lock in rates for a maximum of 120 days, which is why we usually recommend reaching out to us once you are within four months of your renewal date. Given that rates have been increasing so quickly, and with more rate increases expected, I would recommend reaching out to us if your mortgage is coming up for renewal within the next 6-8 months.

 

Find Out Your Options

It doesn’t take long to find out if there are better renewal rates available to you. Just shoot us an email at pmteam@citycan.com along with answers to the following questions which will give us the information required to determine the lowest rate you will be eligible for:

  • When is your exact maturity date?
  • How much will you owe on the mortgage at renewal? (or current balance if not known)
  • What is the approximate value of the property?
  • What was the original purchase price when you bought the home?
  • What was the date when you purchased the home? (closing date)
  • Which lender are you with right now?
  • How long have you had your mortgage with this lender?
  • When you bought the home, did you pay CMHC insurance? (meaning you had less than 20% down payment).
  • Do you have a Home Equity Line of Credit or any other component attached to your mortgage?
  • Is the property owner occupied or a rental?
  • What rates has your current lender offered you to renew?

 

Why so many questions?

Rates can vary depending on your situation which I explain in my blog on Why Different People are Quoted Different Rates. The above information should tell us what we need to know to ensure you’re getting the lowest possible rates.

 

Conclusion

We all work hard for our money, and the last thing we need is to be throwing away money at renewal. Especially at a time when mortgage rates are continuing to rise and the general cost of living continues to climb. Sure, it’s super easy to sign the renewal form and send it back to your current lender. But it’s also easy to shoot us a quick email to find out if there are lower rate options available to you. If it makes more sense to stay with your current lender then we will of course advise you on that. But more often than not, we will make it worth your while to make a move.

For more information you can check out my blog on Everything You Need To Know About Mortgage Renewals 

 

*Exact numbers will vary depending on remaining amortization, mortgage balance, exact rates offered, etc.