When your mortgage renewal letter arrives, signing it may feel like the easiest option.
Your current lender already has your information. There is less paperwork, no need to contact other lenders and the renewal form may only require a signature.
But convenience can be expensive.
๐ฌ๐ผ๐๐ฟ ๐น๐ฒ๐ป๐ฑ๐ฒ๐ฟโ๐ ๐ณ๐ถ๐ฟ๐๐ ๐ผ๐ณ๐ณ๐ฒ๐ฟ ๐ถ๐ ๐ป๐ผ๐ ๐ฎ๐น๐๐ฎ๐๐ ๐ถ๐๐ ๐ฏ๐ฒ๐๐ ๐ผ๐ณ๐ณ๐ฒ๐ฟ. Before signing, compare your choices, negotiate the rate and make sure the new mortgage still fits your life.
Why You Should Start Early
Do not wait until the final week before your renewal date.
Start reviewing your mortgage about ๐ฏ ๐๐ผ ๐ฐ ๐บ๐ผ๐ป๐๐ต๐ ๐ฏ๐ฒ๐ณ๐ผ๐ฟ๐ฒ ๐ถ๐ ๐ฒ๐
๐ฝ๐ถ๐ฟ๐ฒ๐. This gives you time to compare rates, gather documents and speak with other lenders or a mortgage professional.
Starting early also gives you time to correct problems with your credit or finances. If another lender asks for income documents, an appraisal or additional information, you will not be forced to make a rushed decision.
Your lender must provide renewal information at least 21 days before the end of your term, but 21 days is not much time to properly compare your options. Waiting for the official renewal letter can put the lender in control of the conversation.
Donโt Be Afraid to Negotiate
Many borrowers assume the rate shown in the renewal letter is final. It may not be.
Contact your lender and ask:
- Is this your best available renewal rate?
- Can you match a lower offer from another lender?
- Are better rates available for a different term?
- Can you reduce or remove any renewal fees?
- Can you hold this rate while I compare my options?
Negotiating does not mean being aggressive. It simply means asking the lender to compete for your business.
If you have made your payments on time and maintained good credit, remind the lender that you have been a reliable customer. However, loyalty alone is not a reason to accept a more expensive mortgage.
A Small Rate Difference Can Matter
A rate difference of 0.10% or 0.20% may not sound important, but a mortgage is a large loan. Even a small difference can affect your payment and total interest cost.
Do not compare only the advertised rate. Ask each lender for the estimated monthly payment and total interest over the full term.
Also make sure you are comparing the same type of mortgage. A five-year fixed mortgage should be compared with another five-year fixed mortgageโnot a shorter term or variable product with different conditions.
Look Beyond the Lowest Rate
The lowest rate is not always the best deal.
Before renewing, compare:
- Prepayment privileges
- The penalty for breaking the new mortgage early
- Portability if you move to another home
- Options for increasing your payments
- Restrictions on refinancing
- Whether the mortgage includes a home equity line of credit
- Customer service and access to advice
A mortgage with a slightly lower rate can become expensive if it has a large penalty or prevents you from making changes later.
Think about what may happen during your next term. Could you sell your home, refinance, separate from a partner, move for work or need access to your home equity? Your future plans matter just as much as todayโs rate.
Should You Switch Lenders?
Switching lenders at renewal may help you get a better rate, better mortgage features or better service.
However, another lender will usually need to approve you. You may need to provide income documents, pass the mortgage stress test and complete a property appraisal.
There may also be appraisal, legal, discharge, transfer or administration fees. Ask the new lender whether it will cover some or all of these costs.
At the end of your mortgage term, you can normally move the mortgage without paying a prepayment penalty. But that does not mean the switch is completely free. ๐๐น๐๐ฎ๐๐ ๐ฐ๐ผ๐บ๐ฝ๐ฎ๐ฟ๐ฒ ๐๐ต๐ฒ ๐๐ผ๐๐ฎ๐น ๐ฐ๐ผ๐๐โnot only the interest rate.
Use Renewal as a Financial Checkup
Renewal is a good time to review your full financial situation.
Ask yourself:
- Can I comfortably manage the new payment?
- Should I choose a fixed or variable rate?
- Do I want a shorter or longer term?
- Can I make a lump-sum payment before renewing?
- Am I planning to move or refinance soon?
- Can I shorten my amortization without hurting my monthly budget?
Do not automatically extend your amortization just to lower the payment. It may provide short-term relief, but it can also keep you in debt longer and increase the total interest you pay.
'The Bottom Line
Your mortgage renewal is not just paperwork. It is a new financial agreement that could affect your budget for several years.
Start early. Compare lenders. Negotiate the rate. Review the penalties and conditions. Calculate the full cost before signing.
๐ฌ๐ผ๐ ๐ฑ๐ผ ๐ป๐ผ๐ ๐ผ๐๐ฒ ๐๐ผ๐๐ฟ ๐ฐ๐๐ฟ๐ฟ๐ฒ๐ป๐ ๐น๐ฒ๐ป๐ฑ๐ฒ๐ฟ ๐ฎ๐ป ๐ฎ๐๐๐ผ๐บ๐ฎ๐๐ถ๐ฐ ๐ฟ๐ฒ๐ป๐ฒ๐๐ฎ๐น. They should have to earn your business again.
This article provides general information only. Mortgage rates, qualifications and costs vary. Speak with a qualified mortgage professional before making a decisio
