There are several things to consider when deciding whether to renegotiate your mortgage. If you do decide to make the leap, there is no such thing as a one-size-fits-all mortgage. Following are some tips to help you negotiate the best deal when refinancing:
1. Take personal and work stock
If you think your job or financial situation will change, it's probably best, at least in the short term, to go for a variable-rate mortgage. You can always lock in a fixed rate if your situation stabilizes. "In terms of flexibility, to break a variable-rate mortgage is usually only three months of interest while the fixed rate is many, many times higher," based on the "interest rate differential" – the number of months left on the mortgage, and the amount of interest that would be lost if you break a mortgage early, says David Larock, an independent mortgage planner in Toronto.
2. Know all your payment choices
Besides variable and fixed-rate, mortgage choices can also include: convertible (a variable rate whereby you can "convert" or change it to a fixed interest rate during the mortgage term, usually with no charge, although there may be conditions, such as the time when you can make the conversion or the maximum interest rate); capped (whereby interest rates won't rise above a certain level; and hybrid or combination (part of the mortgage is financed at a fixed rate and part at a variable rate, giving partial protection from rising rates and some benefits from dropping rates), notes the Financial Consumer Agency of Canada.
3. Do it on your terms
The length of the mortgage (usually six months to five years, although there are also seven- and 10-year mortgages) and amortization you choose depend on how much you want your payments to be and how long you want to take to pay off your mortgage (the longer the amortization, the lower the weekly, biweekly or monthly payments) – often decided within your financial plan. The FCAC gives this example: On a $150,000 mortgage with a five-year fixed term at a 5.2-per-cent interest rate, the amount left on the mortgage when the mortgage comes due would be $133,277). A longer-term mortgage can give you more financial stability, while a shorter term one could help you avoid pre-payment charges if you want to end it early.
4. Pick flexible payment options
There are different payment schedule options – usually weekly, biweekly, semi-monthly and monthly. If you want to pay off your mortgage more quickly, choose more frequent payments – because they will be applied to the principal sooner, resulting in reduced interest. Depending on your mortgage, you may also be able to double up on each mortgage payment, or make lump-sum payments annually (typically 10 or 15 per cent of your mortgage amount).