Benefits of Early Mortgage Renewal

Mortgage renewal is a necessary part of owning a home. Some people think of it as a routine process like going to the dentist, while others want to get out of the way as soon as possible. Is this the best approach? 

Early renewals, or even automatic renewals, are fixed at the new rate with the same lender. This means you can miss out on significant savings and other opportunities at another provider. In a relatively small window, the question remains: "Does early renewal save homeowners money or cost money?"

This section describes early mortgage renewals, along with the costs and benefits of early mortgage renewals.

Early renewal benefits borrowers only when interest rates are rising. This is because existing lenders essentially say, "I will renew my mortgage now at the current interest rate before the interest rate rises." On the other hand, if you want to get the current rate from another lender, you will have to pay a penalty to break the contract with the existing lender.

However, unless the rising interest rate environment is dramatic, it is in the borrower's interest to see what other lenders can offer. That is, he must confirm the renewal option within 120 days from the renewal date. This allows existing lenders and all other lenders to compete for your business.

Canadians often fail to review the terms of their mortgage contracts and compare them to what is currently available on the market. Early renewals, and general renewals, provide homeowners with a great opportunity to negotiate lower rates for the next period. You can also take advantage of current interest rates before they rise if, in fact, it is the way they are taking.

Early renewal usually means breaking the terms of your current mortgage and accepting a new term at a more desirable rate. In general, breaking a contract incurs a three-month early repayment penalty at the current interest rate or interest rate differential (IRD).

Two online calculators can be used to compare prepaid penalties with potential savings. First, use the mortgage penalty calculator to estimate what the penalty will be.

Second, to derive interest savings for the period you want to promise (5 years is most common), enter the current interest rate, the currently reachable interest rate, and a 1% higher interest rate (1 or 2 years). , Or the expectation that interest rates will increase this amount over the rest of the period is covered by the mortgage payment calculation. You can see how this works using the following example.

Early updates have another big appeal. This allows homeowners to change their mortgage terms. 2.20% variable mortgage, or cashback to help fund emergency home repairs or renovations He may want to extend to a mortgage. Perhaps current mortgages do not allow large upfront payments and it is expected that large amounts of money will be applied to the principal within the next 12 months.

Mortgages about this option in any scenario He should discuss it thoroughly with the broker to determine if early updates really benefit you.