Renewing your mortgage at the end of term
It can come as a pretty surprising statistic. About 70 per cent of mortgages don’t make it to the end of the term. That means a large majority of homeowners for various reasons are ending their mortgages early. But it also means there are still a lot of people out there who will keep their mortgage until it’s time to renew. And if you’re in the second boat, you might be asking yourself what this process is going to look like, and perhaps, what should you do?
For starters, most lenders, especially the big banks will send you a renewal letter when there’s about three months left on the term. Sometimes that letter could come with six months left. Typically, the lender will offer you a rate at that time and all you’ll have to do is sign at the bottom line to roll over your mortgage.
But beware, lenders often offer a higher rate than a new client because they’re hoping the ease of renewal will keep you from seeking out a new lender and lower rate.
Before you sign, it’s always best to call a mortgage broker. A good broker will consider your situation and advise you of the best course of action.
In some cases, it may be best to just sign and roll over your mortgage. There are a few things to consider. If you decide to change lenders, you’ll basically have to go through an approval process again. That entails getting all your documents, lawyer’s fees and appraisals.
You’ll have to ask yourself, is it worth the effort to save a few basis points off your rate, or a few hundred dollars over a term to make the switch?
For some it won’t be. But, if a switch can lead to saving thousands of dollars, it would certainly be something to consider. While everyone’s situation is different, the larger the mortgage, the bigger the savings will be if you can find a lower rate.
Often, homeowners will just use a bank their parents recommend for their first mortgage. But they might find themselves not happy with the service or terms of the mortgage and may just want to switch to a different lender as the mortgage comes up for renewal.
If that’s a situation you find yourself in, you have options, and a mortgage broker can help you make the best decision.
Should I lock in, or stay variable?
If you follow the news closely, there would appear to be a lot turmoil and uncertainty around interest rates. This past April, the Bank of Canada held the overnight rate at 1.25 per cent, suggesting it was closely watching inflation and wage growth.
“The Bank will also continue to monitor the economy’s sensitivity to interest rate movements and the evolution of economic capacity. In this context, Governing Council will remain cautious with respect to future policy adjustments, guided by incoming data,” the BOC said at the time.
The Bank of Canada raised the rates a quarter point twice last year, and many economists are betting the bank will do the same before the end of the year.
If you’re a conservative homeowner and have locked into a fixed rate, the speculation of an increase isn’t likely keeping you up at night. You can rest easy for the next few years.
But if you’re like many Canadians who chose to go variable, these creeping increases are probably getting you a little nervous. While mortgage brokers don’t have a crystal ball to tell you where rates are going, you can probably assume they are going to increase maybe 50 basis points. There’s all kinds of tea leaves economists are trying to read to get a handle on where the rates will go. While that’s what they get paid to do, increases have real world consequences on your bottom line.
So now the question you may be asking is, should I lock into a fixed rate, or ride out my variable?
And like many financial questions, there’s no easy answer.
First, you’ll tend to find most first time homebuyers are little a skittish at going variable anyway, while someone in their second or third mortgage may have an appetite for a little more risk.
If you’re kept wide awake at night in fear of a rate increase, you may want to lock in. There is something to be said for peace of mind, and locking in your rate can certainly give you that.
But it’s also important to look at the big picture. If we assume the pundits are right and the rate goes up about a couple more quarter points, you still need to look at what that variable rate saved you over the term.
The rates have been historically so low, there’s a pretty good chance if you’ve been in a variable for a few years, the math will prove you still saved money over the five years, even with an increase. Depending on your risk appetite and your financial situation, staying in the variable could still payoff in the long run even with a few more increases.
But these decision are best not made alone. Speak to a mortgage professional if you have any questions about locking in or not and they can help you make the best decision.
Summer Water Conservation Tips:
As a general rule your lawn only needs 2-3 cm of water per week. To cut down your water usage even further, try to use low angle or pulsating sprinklers that produce large droplets of water opposed to a fine mist that will evaporate quicker. Routinely check your irrigation systems for leaks and fit your hose with an automatic shut-off nozzle to ensure water is not wasted when left unattended. Invest in a rain barrel to collect rain water. Be sure to find one with a spigot and suitable cover to protect from contamination and evaporation. Water collected in your rain barrel is actually better for your garden because it doesn’t contain chlorine contaminants and is at ambient temperature. Not only will these tips help protect our environment, but it will help to water down your bills as well.