How to Avoid Mortgage Rate Renewal Shock
(Four-minute read time)
Are you one of the many Canadians renewing your mortgage in the next few years? Maybe you got a great deal a few years ago but are worried about how the rise of interest rates may affect you.
The news says from 2024 to 2026, almost 60% of all outstanding mortgages at Canadian banks will be due for renewal, suggesting some homeowners may face a sharp increase in their payments (RBC Capital Markets).
At WealthTrack, we help break down the facts to help you be proactive in mortgage management.
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What is Mortgage Rate Renewal Shock?
Rate renewal shock can occur when your mortgage is up for renewal.
You may experience rate renewal shock if you need to renew at a time when interest rates are up, compared to your last mortgage. If you’re not ready for the effects, such as higher payments or a longer amortization, you may experience stress on your budget.
The best way to avoid rate renewal shock is to stay informed and plan early on your mortgage renewal process.
Mortgage Industry Overview: What’s the Big Picture?
CMHC’s Fall 2023 Residential Mortgage Industry Report has listed some insights on the current market:
People are shifting to longer terms and amortization periods
Compared to the previous year, there was a significant decline in the number of mortgages for property purchases and refinancing
Many homeowners are having a more difficult time getting approved by their traditional mortgage lenders (banks and credit unions)
More people are turning to higher-cost alternatives and private lending
All these factors can affect your mortgage rate; ask your mortgage broker about these topics:
Interest rate trends
Trends in home prices
Housing inventory levels
Local real estate development
Bank of Canada rate announcements
Government incentives or programs
Assessing Your Current Mortgage
Gather Important Documents: Mortgage agreement, recent statements, and any communication from your lender
Review Mortgage Terms on Your Mortgage Agreement: Pay attention to details such as the interest rate, type of mortgage (fixed or variable), term length, and any conditions or penalties
Check Your Mortgage Statement: Look at your current mortgage balance, the current interest rate, the remaining amount on the mortgage term, and the amortization period
Assess Your Financial Situation: Have there been changes in income stability, employment status, and expenses?
Consider Future Goals: What are your long-term financial goals, and does your current mortgage align with these goals? Ask yourself if refinancing or renewing would support your objectives
Consult with Professionals: Financial advisors and mortgage professionals can help you make informed decisions by providing insights into your specific situation
Understanding Mortgage Rate Renewals
If you plan to renew your mortgage, it's advisable to start preparing at least 3 to 4 months ahead of the renewal date to minimize the impact of rate increases. Most banks will let you lock in the current interest rate for up to 120 days.
Once you receive the written renewal offer from your bank don’t accept it right away, instead, speak with your mortgage specialist. They can help you explore other viable options.
Want to Avoid High Rates?
Read more: 10 Reasons Why You May Not Be Qualifying For The Best Mortgage Rates
Exploring Mortgage Renewal Options & Alternatives
Your financial situation may change between renewals. You may ask yourself, Which Mortgage Term is Best?, and How Can I Secure My Best Mortgage Rate?
Planning will ensure you have more options and freedom of movement in your decisions. There are several options to consider:
Renew with your current lender
Negotiate terms with your current lender
Explore different mortgage terms
Switch to a different mortgage type
Shop around for different lenders
Consider refinancing
Creating a Mortgage Renewal Strategy
Consider these factors in your renewal journey to prevent rate renewal shock:
Start early
Get your lender’s offer in writing
Get a rate hold
Outline your long-term goals. Taking the cheapest renewal option may cost you more in the future, such as penalty fees for breaking your mortgage contract
Read and Understand the Renewal Agreement
Get professional advice on terms and conditions
Prepare to negotiate
Outline what your budget will be if you experience rate increases
Renewing your mortgage when rates are up can be scary; here are the top 7 things you can do to be successful.
Navigate the Deal: Techniques for Mortgage Negotiation
Mortgage rates, terms, and conditions can all be negotiated; therefore, to prevent rate renewal shock, consider your negotiation strategy.
Tips from a professional negotiation trainer:
Pay attention to the details in your mortgage renewal letter
Don’t settle on the first offer
Compare other lender’s rates: your preferred lender may match the lowest rate during the negotiation process
Negotiate using real money terms, avoid using percentages
Consider working with a mortgage broker
If you want to learn more, check out Mastering Mortgage Negotiation: A Practical Guide for Homeowners in the US and Canada
Transform Your Renewal Experience: Expert Guidance Tailored Just for You
The mortgage renewal process does not have to be overwhelming. By understanding the process and exploring alternatives, you empower yourself to make informed decisions.
For personalized guidance tailored to your financial situation, consider booking a call with the dedicated team at WealthTrack today so you can begin your path to a successful mortgage renewal.
No cost, no commitment
FAQ: How to Avoid Mortgage Rate Renewal Shock
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Mortgage Rate Renewal Shock can occur when renewing your mortgage at higher interest rates than before, leading to increased payments and financial strain.
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To be prepared for mortgage rate renewal, start at least 3 months ahead. Gather documents, review terms, assess finances, and consult mortgage professionals.
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Factors that can affect your mortgage rate include interest rate trends, home price trends, housing inventory, local real estate development, Bank of Canada rate announcements, and government incentives.
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You should review your interest rate, mortgage type, term length, conditions, penalties, current balance, interest rate, remaining term, amortization period, and financial changes.
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Options to consider when renewing your mortgage include renewing with your current lender, negotiating terms, exploring different terms, switching mortgage types, shopping around with different lenders, and refinancing.
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To negotiate better mortgage terms, review your renewal letter, don't settle on the first offer, compare rates, negotiate in real money terms, and work with a mortgage broker.
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Rate hold means locking in the current interest rate for up to 120 days to protect against rate increases.
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Ensure mortgage terms align with future plans. The cheapest options may incur higher costs later.
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Review income stability, employment status, expenses, and future financial goals.
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Speak with a mortgage advisor before accepting. Explore other options and negotiate better terms.
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