Renewing a mortgage is a process you may encounter every few years during your home ownership journey.
Whether you’re renewing a mortgage in B.C. for the first time or have done it multiple times, the procedure requires some planning.
Understanding the mortgage renewal process will help you take advantage of the opportunity to secure more favourable terms and potentially lower interest rates.
What is a mortgage renewal?
Mortgages in Canada have two major time components: amortization and term.
Amortization is the length of time it takes to pay off the entire mortgage balance. For new homeowners, an amortization of 25 or more is typical.
The term refers to the duration of your existing contract. Most Canadian homeowners sign up for five-year terms, though it’s possible to get both longer and shorter terms.
Regardless of length, once the mortgage term is up, you’ll need to get renew with your current lender or move to a new lender. Either way, you’re entering into a new contract, and may need to renegotiate the terms, including the interest rate and prepayment privileges.
How to renew your mortgage in B.C.
Toward the end of your term, your lender will provide you with a renewal statement detailing a new mortgage option. If you do nothing, your mortgage will automatically renew at the offered rate.
Since the mortgage renewal letter is automated, it’s unlikely that it will offer the most competitive rates. This means that renewal is a good time to shop around for the best mortgage rates in B.C.
General steps when renewing a mortgage
- Wait for your mortgage renewal statement to arrive, but know that lenders may do so less than a month before the end date of your mortgage term. If you want more time to consider your options, set a reminder for yourself several months before the end of your mortgage contract.
- Shop around or use a mortgage broker to find the best mortgage for your needs. You may also want to reach out to your current lender to see what new terms might be negotiated.
- If switching lenders, you’ll need to formally apply for the mortgage.
- Review the mortgage documents and sign them.Or, if necessary, provide a lawyer with the details they need to complete the transaction.
If you decide to renew with your current lender, the process is often more streamlined, as all it will likely require is for you to review your options and then accept the new agreement.
What is a mortgage renewal statement?
If you have a mortgage with a federally regulated institution, your mortgage lender must send you a mortgage renewal statement, sometimes called a mortgage renewal letter, at least 21 days before the end of your current term. That said, it’s often sent a few months before.
The statement should contain the following information:
- The amount owing at your renewal date.
- The new interest rate offered.
- The new payment terms.
- The length of the mortgage term you’ll be agreeing to.
- Any fees or charges.
To be clear, you don’t need to accept these terms immediately. You can shop around for a better rate with a new lender or negotiate more favourable terms with your current lender, just be mindful of your contract end date.
What to consider before renewing your mortgage
Even though renewing your B.C. mortgage is a fairly straightforward process, it still requires careful consideration. It is an opportunity to get a new mortgage, if desired, so you’ll want to consider the following:
- Your budget. If you’ve built up some savings, you might want to pay down your remaining balance to save on interest and reduce the time it takes to repay your mortgage.
- Interest rate. If your term is at least five-years, it’s likely that interest rates will have changed by the time you’re up for renewal. If they’re lower, shopping around could help you reduce the total cost of your mortgage. If they’re higher, you may need a mortgage with a different amortization period or term.
- Mortgage type. At renewal, you can re-evaluate your need for variable or fixed-rate mortgage. Variable-rate mortgages are typically cheaper, but they can fluctuate over your term. Fixed mortgage rates remain the same for the entire term.
- Payment frequency. When renewing your mortgage, you can choose your payment frequency, for example, monthly, bi-weekly or weekly. Many mortgage providers will also allow you to change the payment frequency occasionally throughout your term.
- Debt consolidation. If you have any outstanding high-interest debt, you could consider renewing into a larger mortgage and use cash-back to pay off your debt.
Renewing your mortgage with a different lender
Mortgage shopping can be done on your own, or you could get a mortgage broker to do the work for you. The primary reasons to renew with a new mortgage lender, would be to secure a lower interest rate or more favourable terms.
If you decide to go with a new lender, you’ll need to go through the entire application process since you’re a new borrower. That means you’ll need to provide your personal information, proof of employment, financial records, and pass the mortgage stress test before approval.
When changing lenders, some additional fees may apply, such as mortgage discharge costs, as well as registration, legal and appraisal fees.
Renewing your mortgage with the same lender
Although it’s unlikely your mortgage renewal letter will list the best possible rate your lender can offer, renewing with the same lender may make sense. You won’t need to requalify, pay discharge fees or deal with much paperwork. Just know, you don’t need to take the first offer given. You can negotiate with them to get more favourable terms
While most people will wait until mortgage renewal is imminent before deciding whether to change lenders, it is possible to start the process earlier, possibly even months before the deadline. Some lenders offer a blend-and-extend option that extends your current mortgage while securing an interest rate that’s somewhere between what you’re paying now on your mortgage and what’s currently available.
How to get the best mortgage renewal rates in B.C.
Getting the best mortgage renewal rates in B.C. is not a complicated process as long as you consider some of the following tips:
- Don’t accept the first offer. When your mortgage renewal letter arrives, contact your lender to see if they can do better.
- Shop around. About four months before your mortgage term ends, check with other lenders to see what rates they’re offering.
- Use a mortgage broker. Enlisting the services of a mortgage broker can help because they’ll shop around on your behalf and present you with the best offer.
- Think about more than just the rate. The best interest rates typically give you limited options. Select a mortgage that aligns with your financial goals and offers the features you want.
Frequently asked questions about renewing a mortgage in B.C.
It is possible to renew your mortgage without an income if you stick with your current lender, because mortgage providers typically won’t require proof of employment on renewals.
An early renewal on a mortgage may be worth it if you’re offered a lower interest rate that will save you more over the long run, or if you’re looking to consolidate high-interest debt.
With interest rates still high, renewing your mortgage in 2023 probably won’t be the best part of your year. If you’re worried about the impending cost of your home loan, keep these options in mind.