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When I started a one-year mortgage term in April, I was pretty confident I’d be renewing at a lower rate in 2024.

Today, it’s looking a lot less certain that interest rates will be lower by the time I renew.

The Bank of Canada’s benchmark rate has gone up half a percentage point since I locked in when prequalifying for my purchase in mid-January.

I still have months to go, but the signs pointing toward eventual rate decreases in late 2023 have been fading as unemployment rates remain near a record low and persistent inflation darkens the outlook for cuts. June’s rate increase came as another blow to my timeline.

It prompts the question: How far in advance can you plan for your refinancing strategy?

Daniel Vyner, principal broker at DV Capital Corp., says there are lots of buyers like me who bought in the past year when rates were high, and many of them are now wondering what they’ll do if they don’t begin to drop by the time they renew. This is especially true for people who opted for one or two-year mortgages in hopes that rates would fall soon.

The key, he says, is to give yourself the most power possible as a consumer, and that means shopping around to compare rates before you’re under the time crunch of your mortgage term ending.

He says roughly three months before term maturity is the ideal time to start meeting with mortgage brokers to determine whether there are better options than your current mortgage provider.

Mortgage renewals: Which is better, a fixed- or variable-rate?

For example, my current lender had the best available rates for one-year mortgages when I started the process of buying my home – roughly 1.5 per cent better than some banks. But that’s no longer the case.

So what’s stopping you from moving providers? There are two key points.

The first is whether the cost of switching is worth it. Mr. Vyner says there are nominal discharge fees to cover legal costs associated with closing your account.

There are also the costs you could face when starting with a new provider, such as having to do another appraisal and other administrative fees.

It’s important to ask potential new providers about these charges and calculate what would cost more: paying the extra interest over a given term if your existing provider isn’t providing the best deal, or covering the upfront fees to switch your mortgage.

The other factor to consider is specific to today’s unprecedented interest environment. In some markets, home values have fallen. For people who bought recently, this means your loan-to-value ratio could increase to the point where other lenders may not be able to offer you a mortgage.

At this point, Mr. Vyner says you may be at the mercy of your mortgage provider, which can essentially offer you whatever rates they like since they may know you may not be able to go to their competition.

For others, a higher interest rate could make it difficult to qualify for a mortgage renewal if your income has stayed the same, since it may jeopardize your ability to pass the national mortgage stress test. This factor has already pushed some to private mortgages, a restrictive and expensive short-term financing product for people who are struggling to qualify for traditional mortgages.

In any case, setting up a strategy sooner than later will ensure that you have the most options when renewal time does come around. This has always been true, but it’s even more important when interest rates are as high as they are today.

April, 2024, is still a long time away for me, but I know I’ll be starting early.

Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.

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