Nearly half of all existing mortgages in Canada will need to be renewed in this year, substantially more than in prior years, according to a new report, amid rising interest rates and new rules that make it tougher for some borrowers to shop around. A CIBC Capital Markets report says an estimated 47% of all existing mortgages will need to be refinanced this year, up from the 25% to 35% range in a typical year.
The increase is an unintended consequence of various rounds of regulatory changes aimed at reducing risk coupled with rising house prices that made it harder for home buyers to qualify. Borrowers in recent years have taken on mortgages with two or three year terms, which are now up for renewal alongside the typical five year mortgages. The increase in renewals comes as mortgage rates have been rising with five year fixed rates up about half a percentage point compared with a year ago.
Meanwhile, new lending rules introduced this year stipulate that homeowners looking to renew their uninsured mortgage are subject to a new stress test, unless they stick with their existing provider, hobbling their ability to seek out a more competitive rate.
Too often, Canadians get their renewal notice and sign on the dotted line. By doing some homework, you can assess if you qualify for a better mortgage. It may be the best choice is to stay with your existing lender. Either way, I can advise you and give you options to get you closer to mortgage freedom.
There are generally four options at maturity, and no penalties apply:
- Pay Off your mortgage in full
- Renew with your existing lender – carry forward the outstanding balance over the remaining amortization.
- Switch or Transfer your outstanding balance and remaining amortization to a new lender.
- Refinance with your current or a new lender. Refinance implies adding money to your mortgage, adding time to your amortization, perhaps incorporating a secured line of credit into the equation, or a combination of the above.
Borrowers may choose to refinance to: Renovate, educate, travel, invest, buy a second home, pay off higher interest debt.
If you are simply “renewing” with your existing lender, provided you have fulfilled your obligation of regular and timely payments, there is no qualifying, no income documentation, etc. required. That said, some lenders are doing “soft checks” on credit; as is their right to do.
The new B20 guidelines state that homeowners who want to switch or refinance their uninsured mortgages are subject to a new stress test. This is making it more challenging for some homeowners to shop around for the best rates and best products.
Because of that, there is less incentive for lenders to offer competitive rates to some of their existing clients, which is a no-win for consumers.
If you are simply “renewing” be sure to check rates to ensure you are being offered a competitive rate for the term and type of mortgage you are considering for your next term. Maybe a “switch” or “transfer” is in your best interest.
Despite these challenges, it’s still a good idea to review your mortgage and your options. There may have been a change in your job or family situation. Your current mortgage may not be competitive. A review ensures you have the best product for your current needs and that it still fits into your overall financial plan.
Typically, your lender initiates the renewal process by sending a mortgage renewal statement about 30 to 45 days before your current mortgage matures. The renewal letter may not give you the best rates available and are often higher than the lender’s lowest rate. It also limits the time you have to review and evaluate options. As mentioned, you may also want to consider refinancing.
Recent studies have shown that those renewing through a mortgage broker saved approximately 40 basis points on their rate versus those who renewed elsewhere (or with their current lender).
Let’s take a fresh look at your future and stay on top of your renewal. Contact us today!