Mike Cara

Mortgage Renewal Coming Up? Don’t Automatically Sign the Bank’s Offer

If your mortgage is coming up for renewal, your current lender will probably make the process very easy.

You may receive a letter or email offering you a new interest rate and mortgage term. Sign here, click there, and your mortgage is renewed.

Simple.

But before you sign, there is an important question to ask:

Is this still the right mortgage for you?

For homeowners in Peterborough and the Kawarthas, a mortgage renewal can be much more than choosing another interest rate. It can be an opportunity to review your entire financial picture and determine whether your mortgage can be structured differently to better meet your needs today.

Your Bank’s Renewal Offer Is an Offer

One of the most common mistakes homeowners make is assuming that because their existing lender sent them a renewal offer, it must be competitive.

That isn't necessarily the case.

Your existing lender already has your mortgage. They know that accepting their renewal is usually the easiest option for you.

But convenience and value are not always the same thing.

Before renewing, it makes sense to compare the proposed rate and mortgage terms with other available options.

And don't look at the interest rate alone.

Consider the entire mortgage, including:

• Monthly payment
• Amortization
• Prepayment privileges
• Early payout penalties
• Portability
• Fixed versus variable options
• Flexibility if your circumstances change

The mortgage with the lowest advertised rate isn't necessarily the mortgage that will cost you the least.

Can You Lower Your Monthly Payments at Renewal?

Potentially.

This is where I believe homeowners should look beyond simply asking, “What's the best mortgage rate?”

A better question may be:

“How can I improve my overall monthly cash flow?”

Your mortgage isn't your only household expense.

You may also be making payments on credit cards, lines of credit, vehicle loans or other debts.

Suppose you save $75 a month by obtaining a better mortgage rate. That's certainly worthwhile.

But what if restructuring your mortgage could eliminate several hundred dollars of higher-interest debt payments every month?

That deserves a conversation.

Mortgage Renewal Can Be an Opportunity to Consolidate Debt

Homeowners with sufficient equity may be able to refinance their mortgage and consolidate higher-interest debt.

That could include:

• Credit cards
• Lines of credit
• Personal loans
• Renovation debt
• Other eligible obligations

The objective isn't simply to make the mortgage bigger.

The objective is to determine whether restructuring the debt can improve your overall financial position and monthly cash flow.

There are important trade-offs.

Moving short-term unsecured debt into a mortgage can extend the length of time required to repay that debt, and the debt becomes secured against your home.

That's why debt consolidation should be approached as a strategy, not simply as a way to obtain a lower payment.

Your Financial Situation May Have Changed

Think about how much can happen during a five-year mortgage term.

Your income may have changed.

You may have become self-employed.

Your family may have grown.

You may have accumulated debt.

Your credit may have improved—or experienced some challenges.

You may be approaching retirement.

You may be planning renovations, helping children financially, going through a separation or simply trying to reduce household expenses.

Why automatically renew the mortgage you arranged five years ago when your financial circumstances today may be completely different?

Your mortgage should fit your life today—not the life you had five years ago.

What If Your Credit Isn't Perfect?

A difficult credit history doesn't necessarily mean your existing lender is your only option.

Canada's mortgage market includes different types of lenders with different qualification criteria.

Depending on the application, options may include traditional banks and credit unions, monoline lenders, alternative lenders and, in appropriate circumstances, private lenders.

The important thing is understanding the complete application before approaching a lender.

Income, credit, equity, property, debt-service ratios and the reason behind any credit problems can all matter.

This is also why the first lender matters.

Submitting an application to the wrong lender can waste valuable time.

We use our proprietary software, together with lender knowledge and experience, to help identify lenders whose guidelines are more likely to match the borrower's circumstances.

Self-Employed? Don't Assume You Have to Stay With Your Bank

Self-employed borrowers can have additional considerations at renewal.

Traditional income documentation doesn't always tell the complete story of a business owner's financial position.

Different lenders have different methods of evaluating self-employed income. Depending on the lender and program, they may consider tax returns, Notices of Assessment, corporate financial statements, business bank statements or alternative income-verification methods.

Being self-employed doesn't automatically mean you can't shop your mortgage.

It means the application needs to be presented properly.

Should You Choose a Fixed or Variable Mortgage?

There is no single answer that is right for everyone.

A fixed mortgage generally provides greater certainty because the interest rate is established for the term.

A variable mortgage responds to changes in the lender's prime rate.

The decision should depend on your financial circumstances, tolerance for payment or rate changes, future plans and the actual mortgage products available when you renew.

Trying to perfectly predict future interest rates is not a mortgage strategy.

Choosing a mortgage you can comfortably live with is.

Start Before Your Renewal Date

Don't wait until the week your mortgage matures.

Starting the conversation several months ahead gives you time to review your situation, compare lenders and address potential qualification issues.

It also gives you something extremely valuable:

options.

If your existing lender ultimately provides the best mortgage for your circumstances, staying with them may make perfect sense.

But that decision should come after comparing the alternatives—not simply because a renewal form arrived in your inbox.

Before You Sign, Ask One More Question

Your mortgage is likely one of the largest financial obligations you have.

When renewal time arrives, don't simply ask:

“What rate are they offering me?”

Ask:

“Is there anything we can improve?”

Maybe you can obtain a better rate.

Maybe you can lower your monthly payments.

Maybe you can consolidate expensive debt.

Maybe you can pay your mortgage off faster.

Or perhaps your existing mortgage really is the best option.

The important thing is knowing before you sign.

If your mortgage is coming up for renewal in Peterborough, the Kawarthas or Central Ontario, I would be happy to review the numbers with you and discuss the options available.

Your Mortgage Advocate,

Mike Cara

Mortgage Broker in Peterborough