Mortgages. They are likely to be the biggest investment of your life. This investment should lead to the Canadian dream of owning your own home.
In Canada, there was a raise of 75 basis points for interest rates. On top of this, two more announcements on interest rates by Bank of Canada are expected in 2022.
Some may feel overwhelmed by the interest rate that they originally signed to. If you are one of those people, a mortgage renewal may be a good option for you.
What are the biggest benefits of renewing a mortgage? Why should you do it? Read on for seven things that you should keep in mind.
1. Specific Terms
The first thing that you should keep in mind is the specific terms attached to the mortgage renewal.
For example, let's say that you see a mortgage rate that is lower and want to switch to that. However, if you do not look closely, you may find out the hard way that this deal is a less flexible one.
One thing that you may not be able to do is make early payments for your mortgage. Instead, you may be stuck with a strict monthly mortgage payment plan and end up paying more in interest than you want to.
Another thing is if you want to get out of the mortgage agreement early. With some deals, there are penalties for the borrower if they want to do this.
The point is, some of these deals may not be as good as they seem. Look closely before signing anything.
2. Try Not to Lower Payments
The next thing that you should keep in mind is that if you have the financial capacity to avoid lowering your mortgage payments, you should do so.
For example, let's say you are trying to get a renewal with a 4.75% mortgage rate (an average for current variable mortgage rates) instead of a 4.3% mortgage rate. In this scenario, we will say that your mortgage is $3,500 per month.
If you can afford to pay that, you should continue to do so. The reason why you would do this is that if you do that under your new mortgage rate, more of that money would go towards the principal than the interest.
Then, you would pay off your mortgage faster.
3. Shop Around
If you are someone who wants to possibly change the terms on their mortgage, it may not be a bad idea to shop around
for a decent rate. Your lender may give you a better rate than you currently have, but that could just be the market.
Do not dismiss other options that are out there. If you search hard enough, you may find a lender that is offering much better rates than the competition.
In Canada, the current average for a 5-year variable rate is over 5%
and it is only expected to increase in 2022. Keep this in mind before agreeing to terms for your next mortgage contract.
4. Do Your Homework
Along with shopping around, you want to do your homework before agreeing to a mortgage renewal. The reason for this is that if you go in not knowing what the current market looks like, you are leaving yourself vulnerable.
If you take the above mortgage rate into account for the current market, imagine a scenario where a lender is offering you a mortgage rate of 6%. You may have no idea that you are getting ripped off.
Know what your options are and know what the current state of the market looks like.
5. Plan Ahead
If you know what your renewal time is, you should not leave this to the last minute. It would be like planning a move or a vacation one day before you go.
In this circumstance, you have to plan for mortgage rates to increase by the time that you are ready to renew a variable mortgage. If that is the case, put some extra money aside for those payments.
Ideally, you should plan your renewal at least a few months in advance.
When you do it like this, you have time to do the proper research to see what mortgage rate you can get on the market. This also leaves you in a stronger bargaining position because you still have time to look into other options compared to if your renewal date was the next day.
6. Do Not Fall for Sticker Price
Do you know what they say about cars and sticker prices? That is typically the sucker price, or the price that car dealers hope buyers will pay.
That is essentially what the posted mortgage rate is for a lender. They may present a number and say that is the lowest rate that they can do.
Do not be afraid to push them a little bit. If you push hard enough and hold a strong negotiating stance, you could find a lower rate than advertised by your lender.
7. Attack the Principal
Finally, remember that mortgage rates are meant to add on interest payments for the lender. That is where they make their profit, so it can be key for you to try to pay off your principal early.
For example, if you are trying to renew a mortgage, you could end up paying a lumpsum towards your principal that you could not do before. Try to take advantage of this because it can clear you of debt.
Learn More About Mortgage Renewal
These are just seven things that you should think about before your scheduled mortgage renewal. You should plan ahead, attack the principal, do your homework, and do not be afraid to negotiate for a better rate. If you do all of that, you should get a decent renewal.
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with your questions today.