Once they’ve locked in, signed the paperwork and settled into their new place, most homeowners don’t think much about renewing their mortgage down the line and what that process might entail. Before you get caught off guard with an unexpected renewal offer from your current lender, take the time to learn more about how early mortgage renewals work and what your options are when it comes to shopping around for better rates.
When Can I Renew My Mortgage?
At the end of your current mortgage term, you’ll be required to renew your mortgage. Luckily, you won’t have to remember this date, or mark it in your calendar for fear of missing it, because lenders are required by law to notify you 21 days before your term is ending.
It’s advised to shop around for better rates starting 120 days from your renewal date. This way you can get a good sense of what the rate environment looks like in advance and give yourself plenty of time to compare your options before selecting what’s best for your current needs.
Should I Renew Early?
During the last 120 days of your current term, your lender will likely reach out with an opportunity for an early renewal. You can expect this to include a new mortgage rate (usually slightly less than their posted rate), a new mortgage term (likely the same duration as the one that’s coming to an end) and a letter for you to sign and send back, should you choose to accept it.
As you may expect, early renewal offers may not be all they’re cracked up to be. They’re convenient and efficient and more often than not, people renew that way without ever shopping around because it’s simply easier. That convenience always comes at a price though, and in this case, it’s in the form of higher mortgage rates. Before you agree and send your paperwork back to your lender, do your homework and make sure you’re not missing out on better rates elsewhere for the sake of convenience.
As you get closer to the end of your current term, make sure to reevaluate your goals so you can get a better idea of where you are now and where you want to be in the next few years. Consider the following criteria:
Marital Status
Has your marital status recently changed? Whether you’re now married, divorced, separated or in a common-law relationship, it could affect your ability to make mortgage payments in a positive or negative way.
Income
A change in income can be either positive or negative. A positive change may be the result of a promotion or a new job which has given you more disposable income and the ability to pay your mortgage off faster with higher and more frequent payments.
A negative change could be a loss of income as a result of a job change, demotion or retirement. In this case, you may want to consider seeking out options that give you lower monthly payments to lessen the financial burden. If this is something you’re considering, keep in mind that simply renewing your mortgage with a new lender won’t change your amortization period or your monthly payment amounts. For that to be an option, you’d need to refinance your mortgage.
Monthly Expenses
If the number of monthly expenses you’re carrying has increased or decreased, this could affect how much you can afford to pay toward your mortgage.
Financial Goals
As we age, our financial goals change. If yours have shifted since you applied for your mortgage, this may affect your needs in the future. Accessing home equity to pursue home renovations, pay for a child’s education or start a family could be something to consider.
Pros Of Renewing Your Mortgage Early
The benefit of an early mortgage renewal depends entirely on the rate being offered. If you’re concerned about rates increasing or losing access to a rate that is working well for your budget, you may consider renewing early to lock in a rate that could potentially save you money over time.
Cons Of Renewing Your Mortgage Early
Choosing to lock into a new mortgage early through your current lender can come at a cost, and it’s typically in the form of higher interest rates and penalties for breaking your mortgage term early. While it may seem convenient to secure a good rate in advance, you could be missing out on a great rate through another lender because you opted to take the easier option.
Accepting Your Lender’s Early Renewal Offer
Often, the only time accepting your lender’s early renewal offer is a wise choice, is if you’re currently in a drastic rate increasing environment which presents the risk that your rate could increase significantly if you choose to go elsewhere. Should you choose to accept your lender’s early renewal offer without shopping around for other rates, you allow them to take your business without them really having to work for it by means of providing a better deal or rate.
When considering an early mortgage renewal, it’s very important that you weigh out all your options, compare costs and really understand the benefits each will provide so you can make sure that your decision is worth it financially. If you’re not sure where to start or find yourself in need of professional advice, you may consider consulting with a mortgage broker to find the best mortgage product for your specific needs.