We all require more up-to-date information than ever today as the mortgage landscape changes rapidly. To put things into perspective, just one year ago, mortgage interest rates were in the low to mid 2.00% range, and today they are in the mid 5.00% range – a big difference. Preparation and understanding are key to ensuring that your finances are not seriously affected when you renew in this higher-rate environment.
In this article, we’ll cover what to do when you have a lower rate and you will need to renew your mortgage at a higher rate, plus the available solutions for when:
- Your bank is offering you a higher rate than other lenders.
- You need to access equity or renovate your home.
- You need to requalify, but your income or credit has decreased.
- You are waiting on a preconstruction to finish, but your current home is renewing soon.
- Rates start to drop, and you’re locked into a higher fixed rate.
- Extended amortization
If you have the ability to extend the amortization period (the date that your mortgage will be paid off in full), this will lower the monthly payment and alleviate any strain a higher rate would put on your cash flow.
- Switch to a lender with more favourable prepayment privileges
You can move your mortgage to a new lender at renewal time without penalty. If you choose one with more favourable prepayment privileges, you can also avoid paying a hefty penalty when you refinance into a lower-rate product when the rates drop.
- Take a shorter-term or variable rate option
The shorter the term, the less you will pay in penalties if you decide to break your mortgage contract early to get a lower rate in the future.
- Negotiate with your bankWe’ll help guide you through this process to help you get the lowest rate if your current lender’s mortgage product is still the best option for you.
- Switch to a new lenderYou do not have to renew with your bank when your mortgage comes up for maturity. We’ll shop around to find the best rate and terms for your needs. You could save thousands a year if another lender has a better option.
- Refinance with an equity take out
Because there’s no penalty at the time of renewal, you can refinance and increase the mortgage amount based on your maximum qualification. Then you can take out a percentage of that increase as cash.
- Refinance and add a HELOC product
You can use the HELOC to take out as much or as little as you need to renovate, paying it back just as you would with a line of credit.
- Renew your current mortgage and take out a second mortgage If the above two options are not available to you, you may be able to take out a second mortgage with a private lender. The rates would be higher, but it might be a viable short-term option for your goals.
- Refinance into a new product and take out some of the equity as cashDepending on your debt qualification and credit score, a refinance might be a viable option with an alternative lender for a slightly higher rate if your bank has declined you.
- If a refinance is not a viable option in the higher rate environment:
a) Renew your current mortgage and add a HELOC product with an alternative lender, or
b) Renew your current mortgage and use a private lender to obtain a second mortgage that you can take out as cash to use as required.
- Use the porting option Depending on the terms of your current mortgage, and you may be able to move your existing mortgage to the preconstruction property. Even if there is a gap, most lenders will allow a certain timeframe to do a port.
- Obtain a short-term mortgage Doing this with a new lender can help you bridge the gap if there is one.
- Rates drop, and you’re locked into a higher fixed rate
Even if you are not renewing this year, it’s wise to contact your mortgage broker to run the numbers to determine if breaking your current mortgage contract and getting a lower rate will offset the penalty.If it does, you could save thousands of dollars over the term and even end up with other options that would benefit you, like a reduced payment option or equity in the form of cash.
- Collect the renewal document from your lender. We recommend you request this at least 9 months in advance.
- Make a list of how your life has changed since you last purchased or renewed/refinanced your mortgage. Has your income and debts increased or decreased? Has your relationship status or family size changed?
- Make a list of all your wants and needs. Would you like to pay back some of your debt? Get a lower monthly payment? Renovate your home or increase your emergency fund?
- Get your documents ready. This includes:
a. Most recent mortgage statement
b. Latest property tax bill
c. Insurance document
d. Tax (T4) document and/or paystub.
- Fill out our fast online pre-qualification form.
Our agents will review your details and come prepared to best serve you.
Our mortgage brokers will review your information and let you know if staying with your current lender is your best or if moving to a new one with better rates and terms options is the better option. Remember, Pineapple brokers don’t work for any particular lender; they work for you.
Contact your Pineapple broker today for renewal solutions that will help you save money.