Mortgage Renewal: Everything You Need To Know

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Overview of Mortgage Renewal

Mortgage renewal is an opportunity to realign your mortgage contract to your current family and financial needs. It allows homeowners to renegotiate their mortgage contract at the end of the current mortgage term.

This guide will help you negotiate your mortgage renewal like a pro. You’ll learn;

what a mortgage renewal is
when you should consider renewing your mortgage,
how to move your mortgage to a new lender
the relationship between mortgage renewal and mortgage porting
and many more

What Is A Mortgage Renewal?

A mortgage renewal is a way of extending your mortgage contract. When you get a mortgage, your agreement with the lender will be in effect for a specific time, say one year, two years, six mortgages, or five years.

At the end of that mortgage contract, assuming you still have a balance, not at the end of your amortization period, and your mortgage is in good standing, the lender will give you the option to renew the mortgage contract or end it if you choose to.

Ending the contract means you have to pay off the mortgage balance owing. You can transfer the mortgage to another through a mortgage refinance or sell the house.

How Does Mortgage Renewal Work?

It is advisable to start the mortgage renewal process at least four months before the end of your mortgage term. Four months gives you enough time to shop for the right mortgage to shop around for a better rate and mortgage term.

Federally regulated lenders are required to inform you before the end of your current term of their intention to renew your mortgage or not. It shouldn’t be a problem to renew with your existing lender if you have made your payments as required and your mortgage is up to date.

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When To Start The Mortgage Renewal Process

Most lenders will allow you to renew your mortgage four months before the end of your current term without paying a prepayment penalty.

We advise that you start looking into your mortgage renewal at least four months before the end of your mortgage term. Federally regulated lenders are required to provide you with a mortgage renewal letter. This letter will state a new rate and terms the lender is willing to renew the mortgage.

If you choose to switch lenders, you should submit your application at least two months before the end of the current mortgage term. Two months give you enough time to complete the mortgage application process to ensure your mortgage gets closed and funded in time.

The rate and terms offered by your existing lender can be your benchmark to compare with rates and terms offered by other lenders.

Renewing With Your Existing Lender

It is relatively easy to renew your mortgage with your existing lender if you choose to, as long as you’ve paid your mortgage as agreed. All you have to do is sign the renewal agreement and send it back to your lender. The renewal agreement will state mortgage rates for the different mortgage terms you offer.

You won’t be subject to qualification or stress-testing. You do not need to provide documents (like determining your income ratios or stress-testing your application) and go through an application process.

While renewing the mortgage with your existing lender is more accessible, it can be costly in the long run if it is renewed at a less competitive rate.

Advantages Of Renewing With The Same Lender

Cheaper

Renewing your mortgage with your existing lender is cheaper. You do not have to pay a discharge, origination, or layer fee. These fees can add up. Switching lenders can cost around 1% to 2% of the mortgage loan.

Convenience

Also, renewing your mortgage with your existing lender is more convenient. You do not have to apply for a new mortgage or go through the mortgage qualification process like debt-service ratio assessment, income validation and credit score review. You get the lender’s current mortgage rate with all the above advantages.

Advantages Of Renewing With The Same Lender

It May Be Expensive In The Long Run

Even though you don’t get to pay a lawyer fee, origination fee, or appraisal fee when you renew your mortgage with your existing lender, it may still cost you more in the long run if you end up with a high mortgage rate.

Switching lenders allows you to shop with other lenders for a better rate and flexible options. You may be leaving money on the table by not shopping around for a lower mortgage deal.

Fewer Options

Furthermore, you will have fewer mortgage offers to select from if you stay with your lender. There are thousands of mortgage deals on approvU with flexible terms and conditions.

By not considering these mortgages from other lenders, you may end up with a mortgage that is not best aligned with your current financial situation.

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Switching To A New Lender

You can also renew your mortgage by switching your mortgage contract to a new lender. You will be required to qualify for a mortgage with this new lender.

You will be subject to the new lender’s mortgage application and qualification guidelines like stress-testing, documentation, etc.

While renegotiating your mortgage terms or switching lenders may sound like an overwhelming process, the savings you might receive could be worth it.

You could save thousands of dollars worth of interest by negotiating to switch your mortgage to a new lender for a lower rate.

There are a few closing costs if you choose to switch lenders.

Mortgage Switching Costs

Origination Costs

You will incur general mortgage origination costs if you choose to switch lenders. These costs are appraisal, re-registration, discharge, legal, and origination fees.

For example, discharge fees usually range between $200 and $400

Prepayment Charges

You do not necessarily have to stay until the end of your mortgage term to switch lenders. However, changing your mortgage before the end of the term may entail paying a prepayment penalty if your mortgage is not fully open.

Most lenders you are switching your mortgage to will cover your closing costs up to \$3,000. Some will allow you to increase the loan amount by up to $3,000, saving from paying these closing costs out of your pocket.

Advantages Of Switching Lenders

Better Rate And Terms

Switching lenders allows you to shop and compare other mortgage options and rates. There are thousands of mortgage deals out with better rates and terms.

By switching lenders, you have a universe of mortgage deals at your disposal to shop for the correct terms and at low rates.

There are thousands of mortgage deals on approvU with flexible terms and conditions. Not considering these mortgages from other lenders may end up with a mortgage that is not better aligned with your current financial situation.

Disadvantages Of Switching Lenders

Expensive

You must pay discharge, origination, appraisal, and lawyer fees when you switch lenders. These fees usually range between 1% to 4% of the loan amount.

Subject To New Qualifications Rules

You will be subject to mortgage stress testing and other mortgage qualification rules. Mortgage rules are getting stricter. The recent stress test will reduce how much mortgage you can qualify for and how much house you can afford with your current income and credit.

It may be an issue if you had your mortgage when loans were reviewed with a lower qualification rate, then it may be challenging for you to get approved if your financial situation has not changed.

Time Consuming

It takes approximately 30 days to complete the mortgage switch process. It may even be longer if your situation is not a straight-cutter case.

Renewing A High-Ratio Mortgage

High-ratio mortgages are mortgages with loan-to-value ratios of over 80%. The mortgage is more than 80% of the property value.

You can switch your high-ratio mortgage to a new lender but keep the default insurance on your existing mortgage;

The loan amount must not be increased, and
The amortization must not be extended.

You will have to provide the new lender with the mortgage default insurance account number.

To increase your mortgage balance or extend your amortization period, you will have to qualify and pay a new default insurance coverage.

Also, note that you may be charged a prepayment penalty for switching lenders before the end of the mortgage term.. Some lenders will allow you to add this amount to your mortgage if less than $3,000. Any above $3,000 has to be covered by you.

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Switching A Collateral Mortgage

A collateral mortgage is a 2-in-1 mortgage, and it comprises a standard mortgage and a HELOC component. Common collateral mortgages are the Scotiabank STEP mortgage, MCAP Fusion, Manulife One Mortgage, RBC Homeline Mortgage, and BMO Redline Mortgage.

Most lenders are unwilling to cover the legal and appraisal fees when switching to a collateral mortgage. Depending on the province, legal fees can range from $800 to $1,500, and appraisal fees can go anywhere from $299 to $700

Mortgage Renewal Vs Refinance

Mortgage Refinance

Mortgage refinancing is replacing your existing mortgage with a new mortgage contract. The mortgage contract often has different terms from your current mortgage contract. Interest rates, terms, loan amounts, amortization, and more will likely be added when you refinance your mortgage.

Borrowers often refinance their mortgages to cash out on some of the equity in the property for debt consolidation, investment and medical expenses.

They also refinance for better rates and better terms. The rationale for refinancing a mortgage differs from the rationale for renewing a mortgage.

Mortgage Renewal

Mortgage renewal happens most often at the end of your mortgage term. When you renew your mortgage with your existing lender, you are simply extending your current mortgage into a new term.

When you renew your mortgage, you will not likely be allowed to extend the amortization or increase the loan balance.

Borrowers often choose to renew their mortgage simply because their current term has ended. Lowering the mortgage rate may be another reason to renew a mortgage but, the mortgage penalty often outweighs the benefit of the lower mortgage rate, making this a less likely rationale to renew a mortgage.

Mortgage Transfer Vs Renewal

Transferring a mortgage means you are transferring the ownership of the property and obligations of the mortgage to someone else. It is often done between family members. For example, a mother is transferring her ownership stake in a house to her child.

Transferring a mortgage is not the same as renewing a mortgage.

When a mortgage is transferred, the property’s ownership structure changes.

There is often a cashout in mortgage transfers. Continuing with the mother and child example above, the mother may want to cash out her equity in the property.

The new owners of the property have to qualify. Otherwise, the transfer won’t go through.

Mortgage Renewal Vs Mortgage Porting

Mortgage porting allows you to transfer your mortgage contract from one property to another. It involves selling an existing house and buying a new house.

Porting enables you to move the mortgage on your current house onto your new house without breaking your mortgage contract and paying a prepayment penalty. When you Port a mortgage, you are moving all the existing attributes of the mortgage – interest rate, amortization, term, payment structure and payment obligations to the collateral of the new property.

Porting a mortgage is different from renewing a mortgage.

By renewing a mortgage, you’re extending your mortgage contract to another term without changing the underlying property the mortgage is secured against. Therefore, renewing a mortgage does not involve selling and buying a property.

Mortgage Renewal Vs Blend-And-Extend Mortgage

Blend and extend is a mortgage refinancing method used to increase the balance of a mortgage loan without necessarily breaking the existing mortgage in place.

It is often used to avoid prepayment penalties. You can only blend and extend an existing mortgage with a current lender.

With a blend and extend, you get a new rate that combines your current mortgage rate and your lender’s new mortgage rate for your selected mortgage term.

However, mortgage renewal does not involve blending mortgage rates. It is often done at the end of an existing mortgage term, meaning no prepayment penalty.

Final Thoughts On Mortgage Renewal

Mortgage renewal is a popular mortgage transaction. Each year, thousands of mortgages are due for renewal. Without the proper knowledge about how to go about it, you might find yourself in the wrong mortgage contract.

You must ensure that your new mortgage contract correctly captures your family and financial situation changes.

It is now your time to go negotiate your new mortgage contract like a pro.

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Mortgage Renewal: Everything You Need To Know

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In This Guide

Overview of Mortgage Renewal

What Is A Mortgage Renewal?

How Does Mortgage Renewal Work?

Shop Across 25+ Lenders For Your Best Mortgage Deals

When To Start The Mortgage Renewal Process

Renewing With Your Existing Lender

Advantages Of Renewing With The Same Lender

Cheaper

Convenience

Advantages Of Renewing With The Same Lender

It May Be Expensive In The Long Run

Fewer Options

Shop Across 25+ Lenders For Your Best Mortgage Deals

Switching To A New Lender

Mortgage Switching Costs

Origination Costs

Prepayment Charges

Advantages Of Switching Lenders

Better Rate And Terms

Disadvantages Of Switching Lenders

Expensive

Subject To New Qualifications Rules

Time Consuming

Renewing A High-Ratio Mortgage

Shop Across 25+ Lenders For Your Best Mortgage Deals

Switching A Collateral Mortgage

Mortgage Renewal Vs Refinance

Mortgage Refinance

Mortgage Renewal

Mortgage Transfer Vs Renewal

Mortgage Renewal Vs Mortgage Porting

Mortgage Renewal Vs Blend-And-Extend Mortgage

Final Thoughts On Mortgage Renewal

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