Renewing and Renegotiating Your Mortgage

When you bought your home, you probably signed a mortgage agreement that remains in effect for a certain period, called the term. When your mortgage term comes to an end, you will have to pay off your mortgage, renew it for another term or switch your mortgage to another lender.

The end of your term is a good opportunity to reassess what you need in a mortgage and to look for mortgage options that better fit your needs today.

In some cases, you might want to renegotiate your mortgage before the term ends.

You might want to renegotiate your mortgage if your financial situation has changed. Or perhaps you might want to take advantage of changes in the interest rates that are available from mortgage lenders.

Renegotiating generally involves breaking your mortgage contract and may result in some significant costs. Before taking this step, it’s important to consider carefully the costs and benefits.

Whether you plan to renew or renegotiate, knowing what questions to ask can help you get the best mortgage for your needs.

The Renewal Process

What to expect from your lender 

If your mortgage agreement is with a federally regulated financial institution such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term. The financial institution may provide the statement to you as a paper document, or electronically if you consent to receive required information in electronic format.

This statement must contain the same type of information that is in your current mortgage agreement, such as the balance or remaining principal at the renewal date, interest rate, payment frequency, term and any charges or fees that would apply. It may be combined with a mortgage renewal agreement.

If your lender decides not to renew your mortgage, it must notify you at least 21 days before the end of your term.

When to start shopping around

Don’t wait until you receive the renewal letter from your lender. A few months before the end of your mortgage term, contact various lenders and mortgage brokers to check if there is a better mortgage option with terms and conditions that suit your needs.

Take an active approach to finding the mortgage that best meets your needs. Remember that for most people, the mortgage payment is one of the biggest chunks of their household budget. Shopping around and negotiating with your current lender will save you money. You may qualify for a discounted interest rate that is lower than the rate quoted in your renewal letter.

On the other hand, if you don’t take charge of the process, your mortgage might automatically be renewed for another term. This means that you may not get the best interest rate and conditions.

Renewing your mortgage with your current lender

The first step is to reassess your needs. Ask yourself the following questions to help you find the right mortgage:

  • Does your household budget allow you to increase your mortgage payments so you can pay off your mortgage sooner and save on interest charges?
  • Do you want to change your payment frequency (for example, by switching from monthly payments to accelerated bi-weekly payments so you can pay off your mortgage faster)?
  • Do you think you are likely to make additional prepayments?
  • Are you satisfied with the services offered by your current lender?
  • Do you want to consolidate other debts that have higher interest rates?

When you negotiate an interest rate, ask whether you qualify for any special or discounted rate so that you are getting the best rate available. Tell your lender about offers you have received from other financial institutions or mortgage brokers.

Switching to another lender

You do not have to renew your mortgage with the same lender. You can choose to move your mortgage to another lender if it offers you terms and conditions that suit your needs better.

The new mortgage lender will need to approve your mortgage application. The criteria it uses to see whether you qualify for a mortgage may be different from those used by your original lender.

If you decide to switch your mortgage to another lender, make sure you find out the costs of changing lenders, such as:

  • set-up fees with the new lender, such as fees to discharge the previous mortgage and register the new mortgage
  • a transfer or assignment fee from your current lender
  • an appraisal fee to confirm the value of your property (if necessary)
  • other administration fees.

Ask if your new mortgage lender would be willing to pay for some or all of your costs to switch.

When switching lenders, a new mortgage default insurance premium will only be required if your existing mortgage loan is modified—for example, by increasing the loan amount or extending the amortization period . Inform your new lender that mortgage default insurance is already in place on the existing mortgage you are switching.

You may also need to meet with your lawyer (or notary in Quebec) to sign the mortgage agreement.

Switching lenders with a collateral charge mortgage

If you have a collateral charge mortgage and want to switch lenders, you will likely need to pay fees to discharge your existing mortgage and register a new one with the new lender. Your current lender can also require you to repay any other debts secured by the collateral charge on your home, such as lines of credit or car loans.

A collateral charge mortgage is registered in a different way from a traditional mortgage, which uses a standard charge. The collateral charge may be registered for a higher amount than your actual mortgage loan. This allows you to potentially borrow additional funds on top of your original mortgage loan in the future without having to pay fees to discharge your mortgage and register a new one.

However, your lender will need to approve any requests and re-qualify you for any additional funds you want to borrow. The interest rate and other terms of additional borrowing may be different, as each loan or line of credit is subject to a separate credit agreement.

Some lenders in Canada register all new mortgage loans with collateral charges. To find out whether your mortgage has a standard or a collateral charge, ask your lender or your lawyer (or notary in Quebec) well before your renewal date. This will allow you time to consider your options based on how your mortgage is registered.

Dealing with a mortgage broker

A mortgage broker offers mortgage products from several different lenders. When you are considering a mortgage broker, ask which lenders they deal with.

Some lenders only offer their products directly to borrowers, while some mortgage products are only available from brokers.

A broker may not automatically check whether your current lender can offer you a better deal. To be sure that you are getting the best offer from your current mortgage lender, contact the lender directly. It is your responsibility to compare the new offers from a broker with the offer from your current lender.

Mortgage brokers generally do not charge fees for their services. Instead, they usually receive a commission from the lender when they arrange a transaction.

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