A proactive approach to renewing your mortgage makes it possible to align your financing with your goals.
The barbecue grills are out, lawn mowers have been dusted off, and snow tires have been swapped for all-season radials. For many Canadians, the arrival of spring means it's time to start making plans for the warm days ahead.
There's something else on the minds of many Canadians these days: their mortgage. According to a recent survey by RBC, about a third of mortgage holders in the country have already started thinking about renewing their mortgage. Among this group, almost half think about this subject more than six months before their mortgage renewal date, and about the same percentage actually know the exact date for their mortgage renewal.
"Canadian homeowners tend to have a high awareness of their mortgage," says Erica Nielsen, vice president, products and segments, home equity financing at RBC. "For most Canadians, their home represents their biggest investment, so they want to be very active in planning and making the right choices with this investment."
While renewing a mortgage can be as quick and easy as coming in to the bank to sign some papers, mortgage holders should take the time to review their life plan so they can choose a mortgage arrangement that aligns with their goals, says Ms. Nielsen.
"Think about what you expect to happen in your life over the next three to five years," she says. "Do you anticipate that you're going to stay in your current home, or are you likely to move? If you plan to stay, is there a chance you'll be renovating? As you think about mortgage renewal, it's important to consider the factors that might impact your mortgage."
The outcome of this life plan review, says Ms. Nielsen, will help mortgage holders determine the renewal terms that suit them best. For example, a couple whose children have all recently left to go to college or university may select a shorter-term mortgage if they are thinking of downsizing their home.
Mortgage holders shouldn't wait until their mortgage maturity date before visiting their bank to discuss renewal options, says Barry Gollom, vice president, mortgages and lending at CIBC. He notes that most lenders provide an early renewal window. CIBC clients, for instance, can renew as much as five months prior to their mortgage maturity date without facing a prepayment fee.
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Canadians increasingly opting for peace of mind when it comes to their mortgage: CIBC A new CIBC survey finds Canadians not banking on further rate cuts and are electing to lock in the benefits of a fixed-rate mortgage Highlights of the poll include: 57 per cent of Canadians would choose a fixed-rate mortgage if they were to acquire, refinance or renew a mortgage today 30 per cent would pick a variable-rate mortgage 11 per cent were undecided between fixed and variable, down from 19 per cent in 2014 and 25 per cent in 2011 44 per cent expect higher mortgage rates next year, down from 47 per cent last year and 61 per cent in 2011 42 per cent expect rates to stay the same in the next 12 months 9 per cent believe rates will be lower in the next 12 months |
Ideally, says Mr. Gollom, clients should be reviewing their mortgage once a year with their financial adviser to make sure it still works for them and so they have a clear sense of what actions they need to take as their mortgage maturity date approaches.
"If you have unsecured debt with a potentially higher rate of interest, then have a conversation with your adviser about whether or not you should consolidate that debt with your mortgage at time of renewal," says Mr. Gollom. "That decision can have a material impact on your cash flow and allow you to put more money into an RRSP, RESP or TFSA."
An impending mortgage renewal is also a good time to explore the range of options offered by various providers, says Angela Calla, a licensed mortgage professional at Dominion Lending Centres, which helps homeowners find the best mortgage offered by Canada's largest banks, credit unions, trust companies and other financial institutions. She notes that licensed or accredited mortgage professionals are required by law to present the best mortgage options to their clients.
Ms. Calla cautions against making mortgage renewal decisions based solely on interest rates, especially when there's a possibility that the mortgage will need to be modified partway through the term, due to a host of reasons ranging from a relocation, change in health or income, or a change in the interest rate market.
"Fixed-rate mortgages generally incur the highest penalties for future modifications," she says. "Now some lenders are changing their terms to include high exit fees on variables."
Waiting until the last minute – or even past the maturity date – to make a decision about mortgage renewal is not a good idea, she says. Most lenders will automatically put mortgages that have not been renewed into a six-month closed mortgage, "and your payments can suddenly triple," says Ms. Calla.
"That creates pressure for you to sign something quickly," she says. "The sooner you start thinking about your mortgage renewal – four months is ample time – and exploring all the options available to you, the better."
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation.