Renewing and Renegotiating Your Mortgage
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During your mortgage term, you may find that your current mortgage no longer meets your needs. It’s also possible that interest rates might have gone down. These are some of the reasons you might want to Renew or Renegotiate your mortgage agreement—in other words, change the conditions of your current mortgage.
What to expect from your lender
If your mortgage agreement is with a federally regulated financial institution such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term. The financial institution may provide the statement to you as a paper document, or electronically if you consent to receive required information in electronic format. This statement must contain the same type of information that is in your current mortgage agreement, such as the balance or remaining principal at the renewal date, interest rate, payment frequency, term and any charges or fees that would apply. It may be combined with a mortgage renewal agreement.
If your lender decides not to renew your mortgage, it must notify you at least 21 days before the end of your term.
If your mortgage agreement is with a federally regulated financial institution such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term. The financial institution may provide the statement to you as a paper document, or electronically if you consent to receive required information in electronic format. This statement must contain the same type of information that is in your current mortgage agreement, such as the balance or remaining principal at the renewal date, interest rate, payment frequency, term and any charges or fees that would apply. It may be combined with a mortgage renewal agreement.
If your lender decides not to renew your mortgage, it must notify you at least 21 days before the end of your term.
When to start shopping around
Don’t wait until you receive the renewal letter from your lender. 3 - 4 months before the end of your mortgage term, contact our office to check if there is a better mortgage option with terms and conditions that suit your needs. After all we do all the shopping for you, we also guarantee the rate for 120 days. If rates go up you're protected, if rates go down you'll get the lower rate.
Take an active approach to finding the mortgage that best meets your needs. Remember that for most people, the mortgage payment is one of the biggest chunks of their household budget. We Shop around and negotiating with various lenders to help save you money. You may qualify for a discounted interest rate that is lower than the rate quoted in your renewal letter.
On the other hand, if you don’t take charge of the process, your mortgage might automatically be renewed for another term. This means that you may not get the best interest rate and conditions.
Don’t wait until you receive the renewal letter from your lender. 3 - 4 months before the end of your mortgage term, contact our office to check if there is a better mortgage option with terms and conditions that suit your needs. After all we do all the shopping for you, we also guarantee the rate for 120 days. If rates go up you're protected, if rates go down you'll get the lower rate.
Take an active approach to finding the mortgage that best meets your needs. Remember that for most people, the mortgage payment is one of the biggest chunks of their household budget. We Shop around and negotiating with various lenders to help save you money. You may qualify for a discounted interest rate that is lower than the rate quoted in your renewal letter.
On the other hand, if you don’t take charge of the process, your mortgage might automatically be renewed for another term. This means that you may not get the best interest rate and conditions.
Renewing your mortgage with your current lender
The first step is to reassess your needs. Ask yourself the following questions to help you find the right mortgage:
The first step is to reassess your needs. Ask yourself the following questions to help you find the right mortgage:
- Does your household budget allow you to increase your mortgage payments so you can pay off your mortgage sooner and save on interest charges?
- Do you want to change your payment frequency (for example, by switching from monthly payments to accelerated bi-weekly payments so you can pay off your mortgage faster)?
- Do you think you are likely to make additional prepayments?
- Are you satisfied with the services offered by your current lender?
- Do you want to consolidate other debts that have higher interest rates?
Switching to another lender
You do not have to renew your mortgage with the same lender. You can choose to move your mortgage to another lender if it offers you terms and conditions that suit your needs better.
The new mortgage lender will need to approve your mortgage application. The criteria it uses to see whether you qualify for a mortgage may be different from those used by your original lender.
If you decide to switch your mortgage to another lender, make sure you find out the costs of changing lenders, such as:
When switching lenders, a new mortgage default insurance premium will only be required if your existing mortgage loan is modified—for example, by increasing the loan amount or extending the amortization period. Inform your new lender that mortgage default insurance is already in place on the existing mortgage you are switching.
You may also need to meet with your lawyer (or notary in Quebec) to sign the mortgage agreement.
You do not have to renew your mortgage with the same lender. You can choose to move your mortgage to another lender if it offers you terms and conditions that suit your needs better.
The new mortgage lender will need to approve your mortgage application. The criteria it uses to see whether you qualify for a mortgage may be different from those used by your original lender.
If you decide to switch your mortgage to another lender, make sure you find out the costs of changing lenders, such as:
- set-up fees with the new lender, such as fees to discharge the previous mortgage and register the new mortgage
- a transfer or assignment fee from your current lender
- an appraisal fee to confirm the value of your property (if necessary)
- other administration fees.
When switching lenders, a new mortgage default insurance premium will only be required if your existing mortgage loan is modified—for example, by increasing the loan amount or extending the amortization period. Inform your new lender that mortgage default insurance is already in place on the existing mortgage you are switching.
You may also need to meet with your lawyer (or notary in Quebec) to sign the mortgage agreement.
Dealing with a Mortgage Agent/Broker
In the past, prospective home buyers turned exclusively to their banks for their mortgage needs, but you now have more options at your disposal with the growing presence of mortgage agents/brokers. Independent mortgage brokers are licensed mortgage specialists who have access to multiple lenders and mortgage rates. We essentially negotiate the lowest rate for you, and because we acquire high quantities of mortgage products, we can pass volume discounts directly on to you.
One of the main benefits of using a mortgage agent/broker is that we have access to, and knowledge of, the entire mortgage market. We can advise which lenders will consider your case and which will not based on your individual circumstances. This is particularly useful for people with poor credit ratings. We have access to lenders who specialize in servicing people with adverse credit, and can leverage relationships with mainstream banks.
We can also access exclusive deals not available on the open market, or negotiate a better interest rate.
In the past, prospective home buyers turned exclusively to their banks for their mortgage needs, but you now have more options at your disposal with the growing presence of mortgage agents/brokers. Independent mortgage brokers are licensed mortgage specialists who have access to multiple lenders and mortgage rates. We essentially negotiate the lowest rate for you, and because we acquire high quantities of mortgage products, we can pass volume discounts directly on to you.
One of the main benefits of using a mortgage agent/broker is that we have access to, and knowledge of, the entire mortgage market. We can advise which lenders will consider your case and which will not based on your individual circumstances. This is particularly useful for people with poor credit ratings. We have access to lenders who specialize in servicing people with adverse credit, and can leverage relationships with mainstream banks.
We can also access exclusive deals not available on the open market, or negotiate a better interest rate.
Mortgage refinancing isn’t a new concept, but whenever there’s a significant drop in mortgage rates, it’s not unusual for mortgage lenders to receive an influx of applications. Refinancing is the process of attaining a new mortgage to pay off an existing mortgage. The new mortgage comes with entirely new terms, which are typically better for the homeowner.
There are good reasons to refinance a mortgage loan. Perhaps you’re cash-strapped and desperately need to reduce your monthly payment to avoid power of sale. Or maybe you agreed to a bad mortgage loan and want to acquire better terms. Or you want to consolidate some credit card and loan debts.
There are good reasons to refinance a mortgage loan. Perhaps you’re cash-strapped and desperately need to reduce your monthly payment to avoid power of sale. Or maybe you agreed to a bad mortgage loan and want to acquire better terms. Or you want to consolidate some credit card and loan debts.
Breaking your mortgage agreement
Different mortgage lenders offer different terms and conditions. If you have a closed mortgage, your financial institution may or may not allow you to break your mortgage agreement. Read your mortgage contract or ask your mortgage lender if it’s possible. If the financial institution does allow you to break your closed mortgage agreement, it will generally require you to pay a prepayment charge, which could cost you thousands of dollars. Usually, you must pay any prepayment charge yourself. However, if you want to break your existing mortgage but plan to arrange a new one with the same financial institution, ask if your lender will reduce the prepayment charge. See if you can use your prepayment privileges to reduce your mortgage balance, as this may result in a lower charge. Be aware that some lenders have restrictions on how close to the date of renegotiation you can make prepayments. For example, a lender may not allow any prepayments within 30 days of the date you intend to discharge and pay off your mortgage. In addition to a prepayment charge, there may be some fees to break your mortgage. Your financial institution or the new lender may be willing to waive or pay part or all of these fees if you ask it to do so.
Before breaking your mortgage agreement, find out whether you will have to pay:
Different mortgage lenders offer different terms and conditions. If you have a closed mortgage, your financial institution may or may not allow you to break your mortgage agreement. Read your mortgage contract or ask your mortgage lender if it’s possible. If the financial institution does allow you to break your closed mortgage agreement, it will generally require you to pay a prepayment charge, which could cost you thousands of dollars. Usually, you must pay any prepayment charge yourself. However, if you want to break your existing mortgage but plan to arrange a new one with the same financial institution, ask if your lender will reduce the prepayment charge. See if you can use your prepayment privileges to reduce your mortgage balance, as this may result in a lower charge. Be aware that some lenders have restrictions on how close to the date of renegotiation you can make prepayments. For example, a lender may not allow any prepayments within 30 days of the date you intend to discharge and pay off your mortgage. In addition to a prepayment charge, there may be some fees to break your mortgage. Your financial institution or the new lender may be willing to waive or pay part or all of these fees if you ask it to do so.
Before breaking your mortgage agreement, find out whether you will have to pay:
- a prepayment charge and what that amount is
- an administration fee
- an appraisal fee
- a reinvestment fee
- legal and registration fees to discharge the old mortgage and register the new one.
Prepayment charges
The two methods commonly used to calculate a prepayment charge are the following:
Calculating Interest Rate Differential (IRD)
Lets assume the following:
$100,000 5 year fixed rated mortgage
Rate = 6.5%
Mortgage Broken after 3 years
Prevailing rate = 5%* (posted rate for the closest remaining term minus the most recent discount)
IRD = 6.5% - 5.0% =1.5%
Remaining Term = 2 years
IRD Compensation = $100,000 x 1.5% x 2 years = $3,000.00 (equal to the Bank’s lost revenue)
The two methods commonly used to calculate a prepayment charge are the following:
- three months’ interest: an amount equal to three months’ interest on your outstanding mortgage balance
- interest rate differential (IRD): an amount based on the difference between your interest rate and the rate for a mortgage that is closest to the remainder of your term, multiplied by the outstanding balance of your mortgage for the time left on your term. It is calculated on the amount you want to prepay. To determine the comparison rate and the time left on your term, the lender may round the term up or down.
Calculating Interest Rate Differential (IRD)
Lets assume the following:
$100,000 5 year fixed rated mortgage
Rate = 6.5%
Mortgage Broken after 3 years
Prevailing rate = 5%* (posted rate for the closest remaining term minus the most recent discount)
IRD = 6.5% - 5.0% =1.5%
Remaining Term = 2 years
IRD Compensation = $100,000 x 1.5% x 2 years = $3,000.00 (equal to the Bank’s lost revenue)
Pros and Cons of Refinancing
Benefits of Refinancing Your Mortgage Loan
1. Lower Interest Rate
The opportunity to obtain a lower interest rate is a top reason to refinance a mortgage loan. For cash-strapped homeowners, it’s a solution that can keep them in their home and preserve their credit, as a refinance can not only lower the interest rate on a mortgage loan, but also the mortgage payment.
2. Cash Out Your Equity
Equity is the difference between your house’s worth and what you owe the mortgage lender, and selling your house is one way to tap your equity. But if you’re not ready to move, another option is a cash-out refinance. You basically borrow against your equity and refinance for more than your house’s current principal balance. Then, use the additional cash to pay off your debt, make home improvements, start a business, or put toward your kids’ college tuition.
Drawbacks of Refinancing Your Mortgage Loan
1. Applying for a New Mortgage
You might excitedly apply for a refinance with the hopes of lowering your mortgage rate and saving money on your home loan each month. But if there’s been any change to your income or credit since applying for your original mortgage, this can stop a refinancing in its tracks.
2. Refinancing Costs
The cost of a new loan is one of the biggest hurdles to refinancing. Some homeowners are caught off-guard when they’re required to pay Prepayment Charges, home appraisal (if required) and Legal fees.
Benefits of Refinancing Your Mortgage Loan
1. Lower Interest Rate
The opportunity to obtain a lower interest rate is a top reason to refinance a mortgage loan. For cash-strapped homeowners, it’s a solution that can keep them in their home and preserve their credit, as a refinance can not only lower the interest rate on a mortgage loan, but also the mortgage payment.
2. Cash Out Your Equity
Equity is the difference between your house’s worth and what you owe the mortgage lender, and selling your house is one way to tap your equity. But if you’re not ready to move, another option is a cash-out refinance. You basically borrow against your equity and refinance for more than your house’s current principal balance. Then, use the additional cash to pay off your debt, make home improvements, start a business, or put toward your kids’ college tuition.
Drawbacks of Refinancing Your Mortgage Loan
1. Applying for a New Mortgage
You might excitedly apply for a refinance with the hopes of lowering your mortgage rate and saving money on your home loan each month. But if there’s been any change to your income or credit since applying for your original mortgage, this can stop a refinancing in its tracks.
2. Refinancing Costs
The cost of a new loan is one of the biggest hurdles to refinancing. Some homeowners are caught off-guard when they’re required to pay Prepayment Charges, home appraisal (if required) and Legal fees.