Mortgage terms can range anywhere from one to ten years, with the most common being five years. At the end of your term, your mortgage is due and payable. This doesn’t mean you have to fork out hundreds of thousands in cash, although that is one of your options should you have the means to do so. If you’re like most people however, then you’ll need to explore your two other options:

  1. Renew with your current lender
  2. Switch your mortgage to another mortgage lender

 

Renewing Your Mortgage With Your Current Lender
The easiest option is to renew with your current lender. You are not required to requalify, and do not need to provide any documentation. All you need to do select your desired mortgage product from the list of options, sign the form and send it back to your lender.

That’s it. You’re done. 

While this is the easiest option, it can also be costly. While some lenders will put their best foot forward and offer you competitive rates at renewal, it’s not uncommon to see higher rate offerings. I’ve even seen banks send renewal offers at their posted rates. Just to give you an idea of what this means, the difference between a bank’s posted rate and the lowest mortgage rates available if you were to switch to a different lender could be as much as 3.00% or even higher. On a $500,000 mortgage, this works out to a difference of roughly $73,000 over a five year period. This number will vary slightly depending on where mortgage rates are at the time. 

The difference is SIGNIFICANT.

Unfortunately, there are many people who will simply sign the renewal offer and send it back to their bank, without bothering to check other options. It’s rare to see a lender try to gouge with such a high rate offering at renewal, however I’ve seen it done. Banks know that there are some people who will fall into their trap, and sign the form and send it back at the higher rate. 

For many of us, time is precious, and the path of least resistance can be enticing. However, it can also prove to be quite costly. Signing the renewal offer from your lender without bothering to check if there are better options is tantamount to dumping a bunch of money into the trash.

It doesn’t take much time to do a quick Google search, or reach out to me to find out what rates you’re eligible for. Respectable savings are not only possible, but likely.

There are some that are so busy that they don’t care how much they will save. They just want to get it done and over with, so they sign the form regardless of rate. I’ve seen some consciously renew with their current lenders knowing that they could save more than $5,000 by switching. They are okay with this, as they don’t want to spend the extra time to apply for a new mortgage.

But how much time do they think this will really take? 

How long would it take them to save up $5,000….after taxes? 

While the savings can vary from none at all, to significant amounts, this is always something that should explored before signing your mortgage renewal.

 

Switching Your Mortgage To A Different Lender
While not as simple as renewing your mortgage, switching to a different lender is a fairly easy process. Unlike renewing with your current lender, you’ll be required to requalify. This involves a new mortgage application, and some basic documentation will be required. The entire process takes approximately 30 days, so you’ll want to ensure you allow enough time.

What happens if your renewal is date is within 30 days?

There may be some flexibility if you’re only a few days behind, however it’s likely that your new mortgage will still close late. All is not lost however. You would need to reach out to your current lender to ensure that they put you into an open mortgage as of your maturity date. Most lenders will automatically do this, but not all. The only way to know for sure is to contact them and make the request. Do this in writing wherever possible. Some lenders will automatically renew you into a 6 month closed term, which means that a penalty would apply… even if closing a day late. This can sometimes be challenged, however there is no guarantee of success.

Open mortgage rates are usually around 7-8%. The first thing you might think is the rate is crazy high, which it is. But this is an annual rate, and you will only need it for a few days to a few weeks at the most. People will naturally associate the rate with the cost, which makes sense. But in this case, the additional cost is not 7-8%. It’s the difference between the open rate, and the rate on the new mortgage.

For example, let’s say you have $400,000 owing on your mortgage at renewal. The rate on the new mortgage is 3.74%, and the rate on the open mortgage is 7.50%, which is a difference is 3.76%. We would then use this rate to determine the daily cost. This would be calculated as follows:

$400,000 x 0.0376 / 365 = $41.21 per day.  

If you end up missing your renewal date by four days, then it would cost you an additional $164.84 using this example. If you missed it by 10 days, then the additional cost would be $412.10. It can add up, so be sure to allow enough time when starting the process. Even with the additional costs, you will still likely see a respectable savings by switching, but every situation can be a bit different.

 

When Should You Start Exploring Your Renewal Options?
Once you are within 120 days of your renewal date, you can start looking into options. Sometimes banks will send you an early renewal offer up to six months in advance. They know that you don’t have any other options at this time, and may try to make it sound as though you’re getting the deal of the century. While there are times when taking advantage of an early renewal offer might be the best move, it is often a trap. If you’re offered an early renewal from your current lender, let us know what you’ve been presented with and we’ll let you know if it makes sense to act, or to wait it out.

 

What Are The Costs To Switch Lenders?
For the majority of mortgages, legal and appraisal fees are covered for you. The only other fees are a government fee of around $75, and a discharge fee from your current lender. These fees will be added to your new mortgage, so nothing needs to be paid out of pocket. Discharge fees generally range from $0 to $450, depending on your province. In Ontario, they can range from roughly $275 to $450 depending on the lender. While most mortgage lenders will not cover the discharge fee for you, there is a small handful who will. We’ll let you know exactly what’s covered for you when we present you with your options, so you’ll know what to expect before making your decision.

 

Switching A Collateral Mortgage
If you have a collateral charge mortgage, then the legal and appraisal fees may not be covered for you. The legal fee can range from around $600 to $900, depending on your province (around $800 in Ontario), and appraisal can range from around $275 – $500 (or sometimes even higher). Many lenders are now covering these fees for you, but there are still some who are not. We’ll of course provide you with your best options, and will help you to make the most cost-effective decision for your situation.

 

What Happens If You Don’t Qualify?
If you have lost your employment, recently declared bankruptcy, or anything else that might create issues with qualification, then options for switching lenders will be limited. You can however renew your mortgage with your current lender without the need to re-qualify.

Conclusion
Signing the mortgage renewal form without looking into other options is one of the biggest mortgage mistakes you can make. It only takes a few minutes to send me an email at pmteam@citycan.com to find out your options. You could do a Google search as well, but rates can vary depending on your situation. The only way to know exactly what rate you’ll be eligible for is to reach out to a broker to find out your options. I’d be happy to help you out!

 

 

*The lowest mortgage rates are available for insured mortgages, or for those with 35% or greater down payment or equity. Original purchase price must be under $1 million, OR home must have been purchased prior to November 30, 2016.  (some exceptions apply).

 

**Update Jun 9/22:  Removed references to rates available at time of original writing (July 22, 2021)