During the pandemic-era housing boom, many homebuyers purchased residential properties at rock-bottom mortgage rates. In response to the national economy’s pressures, the Bank of Canada (BoC) slashed interest rates to near zero, allowing prospective homeowners to obtain greater purchasing power and acquire a detached house, townhome, or condominium suite that might have exceeded their initial budgetary limits.
Now that rates are at their highest levels in 16 years and the average five-year fixed mortgage rate is close to six per cent when these homeowners renew their mortgages, they will need to be prepared for higher monthly payments. It might be a few hundred dollars, or it might be a few thousand. This all depends on the size of the mortgage and the rate.
Before diving into the steps of renewing the mortgage, it is essential to become acquainted with the basics of mortgage renewals.
Mortgage Renewal: A Primer
So, what do you need to know about a mortgage renewal?
The term of their mortgage expires between one and five years, and you need to renew your mortgage to continue borrowing from the lender. When a mortgage term ends, you can modify the terms of the original mortgage, including changing the length of the term, from a three-year term to a six-year term, for example. Or you may adjust the amortization period or payment frequency.
What You Need to Know About Requalifying
Now, what about requalifying for a mortgage?
Borrowers need to requalify if they switch mortgage lenders. At the same time, considering how high interest rates are today, this would be pretty challenging to requalify for some. The process can be a lot easier if borrowers renew with the current mortgage lender and refrain from negotiating better terms and conditions. However, once mortgage holders attempt to shop around for a different lender, they must requalify. This could leave them in a difficult situation: it would be tougher to renew, and subsequently, homeowners might be left without a lender, forcing them to sell their home. Of course, the other option is to meet with a private lender and pay significantly higher interest rates.
Steps to Mortgage Renewal
Mortgage renewal is a crucial decision that should be carefully considered. You must view current market conditions, evaluate your financial goals, and consult with mortgage professionals to ensure the renewed mortgage aligns with your goals. In addition, the process will involve renegotiating the terms and conditions of an existing mortgage loan, which affirms that a decision must be well-planned.
Here are six steps to follow when renewing a mortgage: