The Bank of Canada has increased interest rates ten times since March 2022, changing the financial landscape for mortgage renewals.
These rate hikes, implemented over 21 months, are now starting to impact Canada’s economy after about seven quarters. Nearly 3.4 million Canadians will have their mortgages up for renewal by March 2025. The Bank of Canada recently decided to keep rates steady at 5.00%. In 2024, with the era of low-interest rates behind us, sound advice carries more importance than it did in the previous decade.
The Impact of mortgage renewals on the housing market
As mortgage renewals approach, Canadians face potential payment spikes of 30 to 40%, adding a hefty $15 billion burden to household budgets, says CMHC. Despite prioritizing mortgage payments, increased costs strain finances, leading to higher mortgage payment delays than other debts. Those benefiting from low pandemic rates may be shaken as renewals hit, now facing the highest rates in a decade. This payment surge might push some homeowners to sell, seeking more affordable options. Hence, increased housing inventory might shift the market in favour of buyers, sparking elevated competition among sellers.
Here are top-notch tips for a successful mortgage renewal in 2024:
- Start Early: Don’t delay! Plan and explore options before the maturity date. Waiting might cause an automatic rollover at a higher rate.
- Never settle for your bank’s first mortgage renewal offer: When you receive their initial letter, it’s often a standard offer, possibly with a posted rate that might not be the best deal. Don’t opt for convenience; reach out to your mortgage advisor. There’s room for negotiation, and your advisor can help secure a better deal based on your needs.
- Think Futuristic: Consider how your life might change. Ensure your mortgage choices today align with future plans, like starting a business or a family.
- Shop Around: Don’t settle. Explore other lenders for better rates and terms if you’re dissatisfied with your current one.
- Negotiate: You can always have a say. Don’t hesitate to negotiate terms, including interest rates, to secure a favourable deal.
- Take Professional Guidance: Start searching for a mortgage broker several months before your renewal to ensure ample time for negotiations and paperwork. Your broker acts swiftly, but lenders might take longer. This timeframe avoids deadline stress and allows seamless negotiation and document preparation. Giving your broker this time ensures a smoother renewal without last-minute pressures.
- Ensure a robust credit score: A healthy score showcases your creditworthiness, paving the way for better rates and terms. Essential practices include timely bill payments, low credit card balances, and avoiding unnecessary debt. Adopting these financial habits positions you better for a successful mortgage renewal.
- Maximize your prepayment privileges: A key to a cheaper mortgage is reducing what you borrow. Before your next mortgage negotiation, aim to pay down as much of your current mortgage as possible. Most lenders permit yearly prepayments to boost monthly payments or lump sum payments to reduce debt. Leveraging this benefit can simplify your upcoming renewal.
Tip: Know your lender’s prepayment rules to avoid prepayment penalties. Some lenders let you pay extra on the principal at renewal without penalties.
- Re-amortize: Extending your mortgage period at renewal can make your monthly payments smaller, giving short-term relief. But in the long run, it could be risky. It adds more interest over time and might affect your retirement plans. For example, a 20-year, $400,000 mortgage at 6%. The monthly payment would be $2,623. Opting for a 25-year term reduces payments to $2,382, saving $241 monthly. However, it adds $297,598 in interest over the loan’s life, compared to $226,825 for the 20-year term. It’s a temporary fix that could lead to bigger payments later.
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The Bottom Line
When your mortgage is up for renewal, it’s not just about sticking with your current lender it’s a chance to find better financial choices. Review your financial situation at renewal to ensure your loan aligns with your needs and goals. Planning, seeking advice if needed, and making smart decisions are vital to avoid overpaying. At Pegasus, we guide and negotiate for your future finances. Like a lawyer defends you in court or a stockbroker advises on investments, your broker can save you time and money. Feel free to contact us for a free consultation at 416-281-9628 or email us at info@pegasuslending.com
