Mortgage Basics

Unlocking the Benefits of Early Mortgage Renewal: A Savvy Homeowner's Guide

Unlocking the Benefits of Early Mortgage Renewal: A Savvy Homeowner's Guide
Written by
  • Ashley Howard
| 27 July 2023
Reviewed, 27 July 2023
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    Are you a homeowner looking to save money and make the most of your mortgage? Many homeowners are unaware of the potential savings and advantages of renewing their mortgage ahead of schedule. By taking a proactive approach and understanding the ins and outs of early renewal, you will give yourself plenty of time to explore all options and rates before making a final decision. 

    Whether you’re a first-time homeowner or have been in the game for years, this guide will equip you with the strategies to maximize your financial well-being. Let’s dive in and discover how early mortgage renewal can benefit you. 

    Key Takeaways

    • Early mortgage renewal can unlock benefits, including securing a better interest rate and reducing monthly payments. 
    • Plan at least 4 months ahead of your renewal date to give yourself time to compare what lenders have to offer and negotiate to lock in a rate without paying prepayment penalties. 
    • Seeking professional advice is highly recommended before determining if early renewal suits your financial situation and goals.

    Understanding Mortgage Renewal

    Mortgage renewal is one aspect of homeownership that often goes unnoticed. Many homeowners simply let their mortgage term end and renew with their current lender without exploring other options. However, understanding the process and importance of mortgage renewal can be a game-changer for your finances.

    When your mortgage term is nearing its end, start planning and understanding the mortgage market at least 4 months before your renewal date. This gives you time to shop around and compare interest rates and terms between lenders. Most lenders allow you to lock in a rate for another term at least 90-120 days before your maturity date without any cost to you. 

    Mortgage lenders are required to send your renewal statement at least 21 business days before your current term ends. This notice will outline your mortgage’s new terms, interest rates, and repayment options. It’s important to review this notice carefully and consider if renewing with your current lender still aligns with your short and long-term goals.

    Early mortgage renewal refers to renewing your mortgage with your current lender before the end of your current term. Shopping around at this stage allows you to take advantage of potentially lower interest rates or negotiate better terms with your lender. However, depending on the type of mortgage, there could be penalties for breaking the term too early, and there’ll always be fees to discharge your mortgage. 

    Your mortgage charge registration will indicate the costs for you to discharge your mortgage.  The costs could be higher if you have a collateral charge mortgage, which is registered against a home.  However, depending on your new lender and the type of mortgage you take on, these charges could be a wash in your overall savings. You will need to weigh the pros and cons of early renewal and determine what savings you might realize by renewing sooner.  

    The Benefits of Early Mortgage Renewal

    Renewing your mortgage early can offer several benefits that positively impact your financial situation. Some of these advantages include:

    Securing a Better Interest Rate

    One of the primary reasons homeowners opt for early mortgage renewal is to take advantage of lower interest rates. By renewing early, you may be able to lock in a lower interest rate, which can result in significant savings over the next term of your mortgage.

    Reducing Monthly Payments 

    A lower interest rate obtained through early mortgage renewal can reduce monthly mortgage payments. This can free up cash flow and allow you to allocate funds toward other financial goals or expenses. You can also choose to keep your payments unchanged to be mortgage-free faster.

    Pay Off Your Mortgage Sooner  

    With a lower interest rate and monthly payments, early mortgage renewal can help you repay your mortgage sooner. By making additional prepayments or changing the payment frequency to an accelerated payment option, you can shorten the amortization period (the length of time to repay your mortgage fully) and save on interest costs over the life of your mortgage. With most mortgages, the ability to prepay or accelerate your payment frequency already exists, and you can take advantage before the end of your term.

    Avoiding Potential Rate Hikes

    Interest rates can fluctuate over time, and renewing your mortgage early can shield you from potential rate hikes in the future. By locking in a lower rate now, you can realize savings over your next term. If rate increases are forecasted, taking advantage of an early renewal could protect you from rising interest rates and any potential financial strain.

    It is important that you start understanding the rates available to you when your mortgage is entering this final phase of its term.  For instance, if market indicators (such as inflation and labour) are pointing to a contraction, you may want to lock in as soon as possible and absorb the penalty and costs to transfer to a lender offering you the best rate. Conversely, if you expect the market to loosen, it may be wise to ride out your term for a lower rate while avoiding a penalty with your current lender.

    Factors to Consider Before Renewing Your Mortgage Early

    While the benefits of early mortgage renewal are enticing, it’s important to carefully evaluate your situation before deciding. Here are a few factors to consider if you are considering an early renewal:

    Current Interest Rates 

    Before renewing early, you must compare current interest rates with the interest rate you pay for your current term. If the difference is minimal, the effort and potential penalty associated with early renewal may not be worth it if there are no cost savings to realize.

    Mortgage Penalties

    Early renewal may come with prepayment penalties if you switch lenders before the end of your term. These penalties for fixed-rate mortgages are calculated as either the greater of 3 months of interest or using an interest rate differential (IRD). The penalties for variable-rate mortgages are usually calculated as 3 months of interest. However, some lenders offer restricted low-rate products that may come with a bonafide sale clause or another type of penalty calculation. Understanding the costs involved and evaluating the penalties for your mortgage will be beneficial when calculating if the savings potential will outweigh these penalties.

    Your Financial Goals 

    Consider your long-term financial goals and how early mortgage renewal aligns with them. If you plan to move or sell your property in the near future, early renewal may only be beneficial if you are renewing to a shorter term to align with your goals. If you plan to stay in your home long-term, early renewal may be beneficial if the goal is to obtain a lower interest rate and more favourable terms. 

    Your Credit Score 

    Lenders consider your credit score when determining the terms of your mortgage renewal. If your credit score has improved since your initial mortgage, early renewal may help you secure better rates and terms from other lenders. 

    Steps to Take for Early Mortgage Renewal

    If you’ve decided that early mortgage renewal is the right move for you, here are some steps to guide you through the process.

    1. Review Your Current Mortgage Terms

    Take the time to understand your current mortgage terms, including the interest rate, remaining balance, prepayment options, and early renewal and porting restrictions. This information will be important to use as a comparison when reviewing what other lenders have to offer.

    2. Research Current Interest Rates 

    Stay updated on current interest rates and where they may be headed, and compare them to your current rate. This will help you determine if better rates are available now and if cost savings will be realized that make early renewal worthwhile. It may also be better to wait for a lower rate, thus making your current lender compete to keep your business with them.

    3. Shop Around for the Best Deal 

    Rarely will your current lender offer you the best deal upfront. Don’t be afraid to explore different lenders and negotiate for better terms. Get quotes from multiple lenders and compare them carefully to ensure you get the best possible interest rate and terms.

    4. Consider Professional Advice 

    Working with a mortgage professional can provide valuable insights and assistance throughout the early renewal process. They can help you navigate the complexities, negotiate on your behalf, and ensure you select the best rate and term for your financial situation and goals.

    5. Complete Necessary Paperwork 

    Once you’ve found the best offer and have decided to proceed, complete the necessary paperwork to initiate the early mortgage renewal process. If you are switching lenders, you must provide all the necessary documentation to start the application process for qualifying for a new mortgage with them. Ensure you fully understand all terms and conditions before signing any agreement.

    Tips for Negotiating a Better Mortgage Rate During Early Renewal

    Negotiating for a better mortgage rate can lead to substantial savings when renewing your mortgage early. Negotiating requires research, an understanding of the market, and a willingness to explore different options. By employing these tips, you can increase your chances of securing a more favourable mortgage rate and term. Here are some tips to help you negotiate effectively.

    Compare Multiple Offers 

    Don’t settle for the first offer you receive. Your current lender will not likely provide you with their best rate and terms upfront, and other lenders may have something better to offer. Shop around, get quotes from different lenders, and compare the interest rates and terms from multiple lenders before selecting the best option for your situation. 

    Negotiate

    Use the quotes you received from other lenders (make sure to get everything in writing) as leverage to negotiate more favourable terms and a better rate with your current lender. Some lenders would prefer to keep your business, and having other offers to use as leverage could see your lender match or even beat competitor rates to retain your business. If your current lender is unwilling to be competitive, be prepared to walk away. 

    Consider a Mortgage Broker, Mortgage Finance Company or Virtual Lender

    Working with a mortgage broker can give you access to a wide range of lenders to help you find the best-discounted rates available. Brokers can negotiate on your behalf, increasing your chances of securing a better deal. 

    Similarly, mortgage finance companies and virtual lenders are interested in helping you secure a mortgage and will always offer the best rates upfront. As they want your business, they will start with transparently low rates up front, eliminating the need to negotiate or shop around the next time you’re up for renewal. 

    Common Mistakes to Avoid During the Early Mortgage Renewal Process

    While early mortgage renewal can be advantageous, there are some common mistakes to avoid to ensure a smooth process. Avoiding these mistakes will help you maximize potential savings.

    Not Comparing Offers 

    Failing to shop around and compare offers from different lenders can result in missed opportunities for better rates and terms. Start early, take time and explore your options, and consider all available offers before making a final decision. 

    Overlooking the Fine Print 

    Carefully review all terms and conditions before signing any agreements. Pay attention to the fine print outlining any restrictions on refinancing or porting the mortgage, prepayment penalties, and other hidden costs. These restrictions could impact cost savings or flexibility should your financial situation change. 

    Neglecting to Assess Your Financial Situation 

    Before renewing early, assess your current financial situation and consider your short and long-term goals. Take this chance to look at your budget and see what has changed since you started your mortgage term. If your circumstances have changed, or if you plan to sell in the near future, it may impact what you are looking for in terms of conditions and restrictions like prepayment options and portability on the new mortgage term. With regard to portability, lender rules can vary, so be sure to understand how they will calculate your porting rate if you decide to take advantage of it in the future.

    Not Seeking Professional Advice 

    Consulting with a mortgage professional can provide invaluable guidance throughout the early renewal process. They can help you review your current financial situation and goals and use this knowledge to help you review what lenders offer and select the best option that aligns with your goals. Mortgage professionals understand the ins and outs of the lenders they are selling – that means they understand how competitive your lender will be and how to negotiate with them.  If nothing else, you may be able to negotiate a better rate with your current lender by seeking out professional advice.

    Failing to Negotiate 

    Always remember that you can and should negotiate for better rates and terms. Don’t shy away from advocating for yourself and exploring all available options. You may even get a better rate just by asking for one. 

    Alternatives to Early Mortgage Renewal

    While early mortgage renewal can be a beneficial strategy, it may not be suitable for everyone. You can consider a few alternative options if you determine that early renewal isn’t the right move. 

    Refinancing Your Mortgage 

    Refinancing involves replacing your current mortgage with a new one, typically to secure a lower interest rate, consolidate debts, or adjust your loan terms. Refinancing is a great way to access the equity in your home, which can be used to consolidate any high-interest debts. This can be a viable option if the potential savings outweigh the costs associated with refinancing. This could also be your only option if you have taken on new obligations since your last renewal that hinder your ability to pass the mortgage stress test to qualify for renewal with another lender.

    Make Lump Sum Payments 

    Instead of renewing early, you can consider making lump sum payments towards your mortgage principal. This can help reduce the overall interest costs and shorten your mortgage term.

    Increase Your Mortgage Payment Frequency 

    Another alternative is to switch from monthly or bi-weekly to an accelerated mortgage payment schedule. This will add additional payments and ultimately save you money on interest while reducing your amortization. A simple switch from monthly to accelerated biweekly payment could reduce your mortgage amortization from 30 years to just over 26 years – saving you more than 3 years of mortgage payments and interest.

    Frequently Asked Questions

    How does an early renewal differ from a switch?

    Early renewal is typically done with your current lender, while a switch is a renewal with another lender.

    How does a renewal differ from a refinance?

    A renewal means you’ll continue your remaining amortization and mortgage balance with a new term and rate. While a refinance means you’ll set up a new mortgage with new terms and conditions. With a refinance, you can change who is on your property’s title and increase your mortgage balance.

    How do the costs differ for a renewal versus a refinance?

    Depending on the type of mortgage charge registered on your property; you may need to discharge, which typically costs about $270 to $350 in most provinces.  You may be required to cover the costs of an appraisal ranging from $250 to $500, depending on the type of property and its location. 

    Additionally, most lenders will cover the costs of transferring a standard charge mortgage through a renewal. Typically you’ll need to cover the charge of a refinance, which ranges from $800 to $3000. There is a higher cost for refinancing if someone is being added or removed from the title.

    Final Thoughts: Is Early Mortgage Renewal Right for You?

    Early mortgage renewal can unlock a world of benefits for savvy homeowners. From securing better interest rates to reducing monthly payments and paying off your mortgage sooner, early renewal is one option to realize cost savings. 

    While this guide has provided valuable insights into early mortgage renewal, it’s important to remember that every homeowner’s situation is unique. Seeking professional advice from a knowledgeable mortgage expert is highly recommended.

    Don’t hesitate to compare and save and have a mortgage expert reach out to discuss your early mortgage renewal options so you can maximize your savings potential.