Category: Mortgage Renewal/Switch

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Advantages Of Early Mortgage Renewal in Canada

Mortgage Renewal

Today, many people take advantage of various mortgages to acquire their dream houses, even when they do not have enough funds. A mortgage is simply a form of loan received by a person from a lender, often a bank, to purchase a house or property. These loans are paid back over an agreed period, either with a fixed or flexible interest rate. Repayment is either spread out monthly, weekly, or some months time. Mortgage services have made property purchases easy for many Canadians today.

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But there are some important details to note in a mortgage. One of those is mortgage renewal. Mortgage renewal is one of the many aspects of mortgages. Some others include mortgage refinancing, equity take-out, and many others. But for mortgage renewal, the main contention is about its benefits and disadvantages. Many people think that renewing your mortgage isn’t as beneficial as professionals portray it to be, because it simply extends your debt to the lender. While some others are ignorant of the benefits of mortgage renewal and thus do not pursue this option available to them.

Therefore, to demystify the notion of mortgage renewal, this article will highlight some advantages of renewing your mortgage early. 

What is Mortgage Renewal?

As the name indicates, mortgage renewal involves the extension or restoration of a mortgage. Mortgage renewal is the process of extending the terms of your loan after the expiration of the current loan with you unable to completely pay off the loan. This means that renewal happens under two conditions: when you are unable to pay off your mortgage at the agreed time and when the current term of your mortgage is up. This happens, especially when you do not have funds to repay your loan, and the best option available to you is to seek a mortgage renewal.

Therefore, mortgage renewal is the act of restoring the mortgage on your house to give you a longer period to pay off your loan. This renewal allows you to renegotiate the mortgage terms, such as the interest rate, payment frequency, and length of the term. In other cases, a mortgage renewal allows you to maintain the same details of your mortgage and simply extend the length of the term.

The Mortgage Renewal Process

The mortgage renewal process is fairly simple. Often, before the end of your mortgage term, if you are unable to pay off your loan in full, your lender sends you a notice that you can renew your mortgage. So, you can either renew your loan for a new term with your current lender, where you can maintain the same loan conditions and rate, or renegotiate new terms and conditions.

You could also search for a new lender to offer you a lower interest rate and a shorter term. This offers you new opportunities with a new lender. But more importantly, it offers more time.

The Pros of Early Mortgage Renewal

In mortgage renewal, the period you renew your mortgage is just as vital as renewing the mortgage itself. There are periods of mortgage renewal, which indicate when a person renews his/her loan. These periods include early and late mortgage renewal.

Early mortgage renewals refer to the process of renewing or extending your loan before your current mortgage term ends. It is done in anticipation of the end of a mortgage term and with the knowledge of ones’ inability to pay off in full before it ends. At the same time, late mortgage renewal refers to when an individual renews his/her loan after the current mortgage term has ended. Each type has its own benefits and disadvantages. But for this discussion, we would focus on early mortgage renewal.

Although the pros of early mortgage renewal vary based on the situation; amount owed, time left, and interest rate. But here are some benefits of renewing your mortgage early.

Renegotiation of Terms

One major advantage of early mortgage renewal is that you have adequate time to carry out your research. Adequate market research allows you to go to the negotiating table full armed with the possibility of having a better outcome.

So, early mortgage renewal allows you to renegotiate your loan terms. Due to proper research, you would know the current rate in the market. You would know if the current market rate is lower or higher than your existing loan interest rate. And if the market rate is low, you can decide to renegotiate a lower rate with your lender while renewing your mortgage even before your current term ends.

Changing Lenders

Early mortgage renewal also allows you to change lenders effectively. Often when you want to renew your mortgage, it is advisable to scout for other lenders with good interest rates. Rates that are lower than that which your current lender offers you. Sometimes, you might not end up using these other lenders, but it gives you a negotiating power at the table with your current lenders if they want to retain you as a client.

Proper research when you plan for early mortgage renewal offers you the opportunity to meet other lenders, scout, and make the best choice for your renewed mortgage. This choice can significantly affect your ability to pay off these loans during the loan term and the rates you get.

Lock-In Rates

With early renewal, you have the opportunity to lock in rates. This means that there might be a sentiment or rumour in the market that interest rates are about to increase. Renewing your mortgage when rates are high means that you will be paying more than your current mortgage. In this instance, you can lock in rates at a lower price by renewing early.

You lock in your renewed mortgage at a lower rate than the future high rate.

Conclusion

Although some might argue that early mortgage renewal has its disadvantages, we can see from the points stated above that it greatly benefits the individual. Renewing a mortgage is beneficial to individuals who cannot pay off their loan in full. But early renewal accords you more benefits as you have enough time to research and make the right choice for your mortgage.

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Hope now you know why early mortgage renewal is good in Canada. Visit our website Best Mortgage Online for any help related to Mortgage, Home Finance in Canada

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Mortgage Renewal Process in Canada

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When buying a house, you usually sign a mortgage with a 15 to 35-year amortization. But throughout that time, the lender can break your mortgage into terms that last anywhere from 6 to 120 months. The mortgage is broken up into 24- to 60-month terms in most cases.

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So, when you renew your mortgage, it usually means that you are signing a new agreement with the lender for a term equal to all or part of what is left on your previous agreement. The renewal cost will depend on current lending rates at the time.

The Mortgage Renewal Strategy in Canada

There are two things that any serious homeowner should do before the end of their mortgage term:

  1. shop around for a new lender or
  2. have a renewal strategy.

While you might think that renewing your mortgage automatically means going with the same lender, there are some great reasons to take advantage of other lending options open to you.

Mortgage Renewal in Canada: Step By Step

Remember, if you don’t shop around for the best mortgage renewal rates available to you, you’re leaving money on the table. So here’s what to do:

Step 1. Start Preparing on Time

Think about how much you can realistically afford and decide on a budget. Remember that your lender will most likely require you to qualify for the new mortgage at a higher interest rate than what you paid on your last term.

Gather all of your financial documents, including the latest payslip, bank account statements, a notice of assessment from the Canada Revenue Agency, etc. Make sure to provide your financial institution with a copy of this information if they request it. You may also be asked to provide proof of employment or other income sources.

Contact a lender and tell them you’d like to get pre-approved for a mortgage renewal. They’ll give you a rate and a pre-approval code that you can pass on to the seller of your house. The seller may then write into the offer that they will accept your renewal application, provided you meet all other conditions for buying a property (price, financing).

Step 2. Choose to Renew or Break Your Mortgage Term Early

When you get a mortgage renewal letter from your bank, it will show your current interest rate next to the new rate you will have if you renew. It’s very tempting to say “OK” and avoid all the confusing fine print. But by doing so, you’re only agreeing to sign another mortgage term with your current lender – which means locking yourself into paying that new rate for the next 20-25 years! That is unless you choose to break your mortgage or renew it early.

The pre-authorized cancellation form is the only way to terminate your mortgage without penalty. It lets your lender know that you’re ready to end your current agreement. The benefit of using this method is that you will be able to shop around for the best new rates and terms from other lenders when you do break it.

Step 3. Know You Renewal Options

Before you renew your mortgage, you need to know what kind of mortgage product would suit you best. Knowing the options might help you become mortgage-free sooner than you thought. Here are some of the essential options and terms you should know:

  • Fixed-Rate Mortgage: Your interest rate stays the same during the loan term. You will need to refinance at the end of the term unless you want to renew your fixed-rate mortgage.
  • Variable-Rate Mortgage: A floating-rate mortgage is also tied to prime lending rates and can change anytime. If interest rates go down, your payments may decline accordingly.
  • Principal and Interest Payment Mortgages: This kind of mortgage has you paying off your principal (the actual loan amount) and financing charges each month for the term.
  • Interest Only Mortgage: You only pay off just finance charges by making monthly payments that don’t cover any part of your principal balance or total interest due during the term.
  • Line-of-Credit Mortgages: A particular type of variable rate mortgage attached to a separate line of credit. It’s great for those who need the flexibility to borrow from their own home during the mortgage term without being charged extra fees or penalties. The interest you pay on this loan changes along with prime lending rates.

Step 5. Remember: It’s OK to Walk Away From Your Mortgage Term

If you’re not happy with any offers from your current lender or another one, don’t just sign anything right away. Instead, consider whether or not renewing is even in your best interests at all. Think carefully about how long you plan on staying in the home before you sign on again – and whether or not finding a better rate than what is being offered might make more financial sense in the long run.

If you do decide not to renew your mortgage, make sure to get out of it properly by either filling out a pre-authorized cancellation form or breaking your term early with no penalty before its time is up. If you don’t, then you could find yourself stuck paying an interest rate that’s higher than what other lenders are offering elsewhere. Also, remember that while mortgages may come with terms designed to protect lenders from customers defaulting on their loans, they’re also meant to help homeowners achieve their financial goals.

The Bottom Line

Your mortgage renewal date is an important day – and it’s your chance to switch your existing loan to a new plan that better suits you. In most cases, the first thing you need to do before even thinking about renewing is to make sure that you’re as satisfied as possible with the product and service being offered by your current lender.

If no other bank can offer a better deal, then don’t be afraid of sticking with what you have if it means keeping monthly payments manageable for both yourself and your family. But whatever you do, make sure not to ignore this crucial step in the mortgage process! It can help ensure that getting rid of your home won’t become more costly than it needs to be later on down the road – especially since most Canadians don’t know when they’ll finally be done with their mortgage.

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What Happens If Your Mortgage Renewal Is Declined in Canada?

Mortgage Renewal

Tens of thousands of Canadians file mortgage renewals every year. There are many reasons to renew your mortgage. Some of the popular reasons for mortgage renewal include:

  • Your current mortgage has ended, and you want a new one.
  • The interest rate for your current mortgage is very high, and you want to take advantage of a lower interest rate before it’s too late.
  • You’ve experienced outstanding credit over the past year and now qualify for a much better interest rate than you had before
  • You want to consolidate your current mortgage and credit card debt into one manageable monthly payment with a lower interest rate.

Suppose you fall under any of these categories. In that case, it is definitely in your best interest to renew your mortgage as soon as possible to take advantage of the benefits listed above.

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However, if you ask, “What happens if my mortgage renewal gets declined?” then keep reading to find out the answer!

Why Your Mortgage Renewal Might Get Declined

There are lots of reasons why your renewal might get declined. When you receive a mortgage renewal letter in the mail, it will include an explanation about what could potentially cause your application to get declined. However, it’s also essential for you to know what can happen even if your bank doesn’t mention declining your renewal in the letter.

That way, you will know what to do if your application gets declined.

●    You Might Be Missing Documents That the Bank Needs

One common reason your application may not get approved is that you didn’t file all of the necessary paperwork with your renewal. For example, every mortgage renewal letter should include a new disclosure statement for you to sign and return. If you don’t sign this new statement, your application will likely decline.

●    You Might Not Meet the Bank’s New Lending Guidelines

When interest rates drop, many banks will begin to offer lower interest rates on their mortgages to compete with other loans and credit cards in the market. However, they usually only do this if you qualify under their new criteria for qualifying for a low-interest rate. If you fail to meet these new criteria, then it’s likely that your application will be declined.

●    You Could Have a Credit Score That Is Too Low

During the mortgage renewal process, your bank will do a complete analysis of your finances. That includes checking why you haven’t made the required monthly payments on time. If you’ve been late with other forms of credit in the past, then this could negatively impact your ability to qualify for a new mortgage. That’s why it’s so important to stay up-to-date with all existing loans and credit cards during your entire time as a homeowner.

●    Your Current Debt-To-Income Ratio Is Too High

The last reason you might not be approved for your next mortgage is what they call the “debt-to-income ratio.” When banks approve new mortgages, they don’t just look at how much you owe on your current mortgage. Instead, they also factor in how much of the monthly income of all members in the household is being used to pay for other forms of existing debt. If this number exceeds a certain percentage, then it’s likely that your application will get declined.

What to Do if Your Mortgage Renewal Gets Declined

While getting declined for a mortgage renewal is not necessarily a substantial financial burden, it can still be a problem if you weren’t expecting this to happen. Fortunately, there are several steps that you can take to renew your mortgage with the same or different bank successfully:

●    Re-Apply at Another Canadian Bank

One of the best ways to turn around your current situation is by re-applying for a new mortgage and doing so as quickly as possible. When applying to other banks, you should make sure that this new application will use information from your most recent tax return instead of your old one. Also, ask a family member or a close friend to co-sign your application form, so you don’t risk being declined if something were to happen.

●    Keep Making Monthly Payments on Time

Another great way to renew your mortgage after it has been declined is by proving yourself as a valuable customer before the bank decides whether or not to approve you for a new mortgage. If your monthly payments are up-to-date, your chances of getting approved will increase. That’s why it’s so important never to neglect your monthly payments.

●    Collateralize Your Property Equity

Another option when getting your mortgage declined is to use collateral to get approved. While this will increase the amount that you’ll be able to borrow, the chances are that you’ll end up paying a lot more money if interest rates suddenly go up again before your next loan term begins. If possible, try to avoid taking out loans in this manner so you can prevent any added financial burden in the future.

●    Find a Less Expensive Place to Live

If there is no other way for you to get approved for a new home loan, then your best option will be to start looking at places within your price range. That way, you’ll still be able to move into your place without worrying about doing renovations or paying too much in the long term. On the other hand, if you don’t mind living somewhere else temporarily, this might be the cheapest option of them all.

Make Sure to Know Your Options!

While getting declined for a mortgage renewal is never a good thing, you have to remember that it’s not the world’s end. As long as you’re willing to put in some extra effort and do whatever it takes to get approved, you will be able to successfully renew your mortgage at another bank or with the same one if they decide to approve you. Just make sure that you never neglect any bill payments, don’t rack up more debt than needed, and always try to keep your debts as low as possible.

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How to Pay Off Your Mortgage Faster

How to Pay Off Your Mortgage Faster

Whether it’s an essential milestone like retirement or a lasting legacy like leaving as much as possible as inheritance, everybody has their reasons for wanting to pay off the mortgage faster. You’ve probably heard mortgage debt in Canada is record-high – the average amount hit a record $355,000 in 2021 – so it’s time to start thinking about mortgage debt reduction.

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Why Pay Off Mortgage as Quick as Possible?

There are many reasons for paying off a mortgage debt as quickly as possible. First and foremost, of course, mortgage debt in Canada is at historic heights and growing fast: more than 20% of mortgage holders had amortization periods of 25 years or more. So if you’re looking to secure your financial future, putting extra effort towards mortgage debt reduction is an excellent place to start.

It can also make your retirement planning easier. Let’s say you have the traditional mortgage debt of $100,000 at 5% interest over 25 years. That means your mortgage payment would be about $582 – but that doesn’t include any interest. Now let’s say you switched that mortgage debt for an even $100,000 at 2.5% over ten years. Your mortgage payment is about $867 – but this time with interest. The interest payments are double the mortgage payments on the 25-year mortgage.

But mortgage debt is also mortgage stress. By signing the mortgage agreement with the maximum amortization period of 25 years or more, you may be putting yourself under unnecessary financial pressure. If your mortgage payment takes up most of your monthly income for two-and-a-half decades, it may be challenging to build retirement savings, especially if mortgage rates keep rising.

By trying to pay off your mortgage faster, you can free up money that may be better spent on other things – like retirement savings down the line. But how do you go about paying off the mortgage faster? It’s all in the math.

Calculating How Long it Will Take You to Pay Off Mortgage

The mortgage calculator is the first place to start when figuring out how long it will take for mortgage debt in Canada. For example, suppose you input all of your mortgage information – mortgage balance, interest rate and mortgage payment amount – into a mortgage calculator like this one. In that case, you can see exactly how much time and money it would take for you to pay off the mortgage.

You may be surprised at how much difference it makes if you try to pay off the mortgage faster. For example, the mortgage calculator shows that paying $100 more per month on a mortgage amortized over 25 years saves about five years and gives you savings of over $35,000 in interest.

Trying to pay off your mortgage debt as quickly as possible means you should never take on more debt than you need. That’s why it’s important to understand mortgage qualification and refinancing, which means making sure that your mortgage payments will fit into your budget, even if mortgage rates rise.

3 Ways to Pay Off Your Mortgage Faster

Now that you understand mortgage qualification and refinancing, as well as mortgage debt reduction in Canada, it’s time to decide how you can start paying off your mortgage debt as quickly as possible. There are a variety of strategies people use to try and pay off their mortgage faster – some with more success than others.

  1. Increase the Amount You Pay Each Month

That is one of the easiest and most effective mortgage debt reduction strategies. Increasing the amount you pay each month over time will significantly reduce your mortgage balance – even if mortgage rates rise. For example, increasing the amount you pay by an extra $100 per month reduces your mortgage term by six months to 8 months on mortgage debt of $180,000 at 6%.

  1. Increase the Frequency of Your Payments

This strategy can be effective in many cases. But there are a few mortgage qualification considerations to keep in mind before you start paying your mortgage off faster using this method:

  • It would help if you had a mortgage payment schedule with a set due date. If your mortgage payment is due on the 15th of each month, for example, you’ll only be able to increase the frequency every other month – unless you pay two mortgage payments in one month.
  • You can’t change your mortgage payment schedule. So, for example, if your mortgage payment is due on the 1st of each year and there are 365 days to pay off your mortgage, you can’t increase the frequency every year – unless you pay more than 365 mortgage payments in a single year.
  • This strategy works best on mortgages amortized over 25 years or more that have little mortgage debt stress on borrowers.
  1. Finance Your Mortgage Debt Reduction

A few mortgage debt consolidation loans can help you pay off your mortgage faster. For example, you can consolidate all of your high-interest credit card debt and other high-interest debts into a mortgage loan on which you’ll make monthly payments with a lower interest rate.

One of the most common ways to reduce mortgage debt is taking a mortgage debt consolidation loan. However, mortgage debt consolidation loans may not be the best option for you if:

You have good credit and can get approved for other types of mortgage refinancing options, such as a line of credit mortgage or variable-rate mortgage, at similar interest rates. Then you can pay off your credit card debts without consolidating them into a mortgage.

You have a mortgage amortized over 25 years or more and can increase your mortgage payments to pay down the mortgage faster. However, you may be better off simply increasing the amount you pay each month since mortgage debt consolidation loans usually have higher interest rates than fixed-rate mortgages.

Closing Thoughts

That’s what you need to do. To recap, there are several ways to reduce mortgage debt, including:

  • Increasing the amount of money you pay monthly
  • Start paying more frequently
  • Financing your mortgage debt reduction

If it’s the right mortgage debt reduction strategy for your situation, mortgage debt reduction is a strategy that can save you mortgage interest and help you pay off your mortgage faster.

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Reverse Mortgage in Canada: Pros and Cons

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Most Canadians tell themselves that they won’t have to worry about anything once they pay off their mortgage. However, even if you pay everything off, you might find yourself strapped for some cash in retirement. Thankfully, there’s a solution for that.

A reverse mortgage can let you tap your home for cash in your later years. One interesting thing about reverse mortgages is that it allows you to hold on to your home – and all of the memories you created there – for as long as you want. It’s no wonder Canadians have been flocking to reverse mortgages in recent years.

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Statistics released by Home Equity Bank show that Canadian homeowners are now carrying more than $5-billion worth of reverse mortgages. That’s the most significant amount of mortgages in the country ever.

If you’re considering a reverse mortgage, it’s essential to understand the ins and outs of the loan. That will allow you to make a smart decision about whether or not a reverse mortgage is right for you.

What Is a Reverse Mortgage?

A reverse mortgage allows homeowners aged 55 years and older to turn their homes into an income stream in retirement. You can do this by taking out a line of credit or a lump sum payment. If you have equity built up drawing money from it to fund your living expenses is entirely tax-free.

Many people wonder what happens to their homes when they pass away. Will the bank come after the house? Unfortunately, the answer is no – that’s a common myth about reverse mortgages.

The bank will not take away your property with a reverse mortgage when you pass on. The loan is designed to be repaid out of your estate. If you don’t have enough money to repay the loan, the balance comes out of your house’s equity.

If there’s no equity available in your home after you die, the bank will lose its investment completely. That means senior homeowners are responsible for any loss.

Is Reverse Mortgage Right For You?

You can easily profit from taking out a reverse mortgage. However, these loans aren’t for everyone; they can become very costly if you’re not careful. Here are the most noticeable pros and cons of reverse mortgages.

Pros of Reverse Mortgage

●     Helps You to Become Debt-Free

Reverse mortgages allow you to pay off your traditional mortgage. That means that not only are you debt-free, but you’ll also have money freed up for personal expenses and emergencies.

●     Allows You to Live in Your Home

Since a reverse mortgage allows you to hold on to your home, it means you can live in the home for as long as you want. No landlord will ever be able to kick you out, no matter how late the rent is.

●     Increases Retirement Income

By using a reverse mortgage to turn your home into an income stream, you can live off of the money as a source of retirement income. In this way, you don’t have to rely on investment income from your RRSP or savings account.

●     Provides Access to Cash for Home Repairs/Upgrades

A reverse mortgage allows owners to tap into their home equity for whatever they may need the money for, including repairing or upgrading their home. While a traditional mortgage requires you to save up for a down payment before getting the loan, reverse mortgages allow you to access your equity immediately.

●     Tax-Free Money Draws

If you have an existing mortgage, a reverse mortgage can help you get more money out of it sooner rather than later. If the interest on your mortgage is close to the tax-free limit, you can take out a lump sum payment and use that money for living expenses. This way, you’ll get more cash in your pocket come retirement time.

Cons of Reverse Mortgage

Can Affect You Financially in Your Later Years

A reverse mortgage could have an impact on your finances when you’re in retirement. Even if you make regular payments through a lump sum payment plan, this isn’t always enough to cover all of the fees and interest charges associated with a reverse mortgage. As a result, you may find yourself paying off the loan well into your 80s – and this can be a lot of money to lose.

Inflation Could Rise by More Than Your Payments Will

If you choose a reverse mortgage plan that provides monthly payments, consider how inflation will impact those payments over time. For example, inflation could make money go further every year, but your monthly payment may not.

Interest is Expensive on Reverse Mortgages

Reverse mortgages are known for being very expensive in terms of the interest rates they charge. So, if you’re using a reverse mortgage to pay off your existing mortgage, keep in mind that the new one will come with much higher interest charges than what you initially paid.

Closing Thoughts on Reverse Mortgages

A reverse mortgage isn’t for everyone. However, reverse mortgages can be a smart way to pay off traditional mortgages and turn your home equity into an income stream. You just need to fully understand the pros and cons associated with these loans before making a decision on them.

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Will Your Mortgage Renew Automatically in Canada?

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Will Your Mortgage Renew Automatically in Canada?

In Canada, when a borrower takes out a mortgage loan to purchase a property, the loan is typically secured by a written agreement called a “Mortgage.” The borrower agrees to repay the mortgage using monthly payments consisting of interest and principal. The period used for repayment of principal is referred to as the term.

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In most cases, borrowers will sign a mortgage for a term of 5 to 25 years. However, once the borrower has paid down the principal to 80% of the property’s original value, he may be able to renegotiate his loan with his lending institution to obtain lower monthly payments.

What Does Mortgage Renewal Mean?

Renewing a mortgage means that the borrower will take out another written agreement with the lending institution, paying off the original loan and signing up for a new term to pay down the principal. Each time this is done, borrowers may be charged fees to obtain their new mortgage.

When Does Mortgage Renewal Occur?

When you renew your mortgage depends on whether or not it has an automatic renewal clause or “option.” At least 30 days before the expiry of your current mortgage, you should receive notification from your lending institution regarding its renewal policy. Borrowers are typically informed if their mortgages will automatically renew subject to certain conditions. These conditions include:

  • The property value increases;
  • The creditworthiness of the borrower;
  • The property type; and,
  • Changes in market conditions.

Suppose your lender does not include an automatic renewal clause in its mortgage agreements. In that case, borrowers are required to make arrangements with their lending institution before the expiry date of their mortgages to obtain new loan terms. Failure to do so may result in a default on the original agreement.

Borrowers who fail to pay their outstanding debts will be subject to foreclosure proceedings by their lenders. They will also lose any accumulated equity in the property, which generally reverts to the lending institution.

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What Happens When Your Mortgage Expires?

If you have a fixed-rate term with no options or renewals attached, your mortgage will expire at maturity. That means that your lender cannot ask you to renew or extend the term of your agreement, and for this reason, a fixed-rate mortgage is a good choice if you think that you might want to move from the property in question before the end of the term.

When Does Your Mortgage Renew Automatically?

During the fixed-rate term of your mortgage, you may wonder what will happen to your rate and monthly payments if they aren’t changed when your agreement expires. That is a good question and one that your lender’s automatic renewal clause can answer.

When Does Your Mortgage Not Renew Automatically?

Most mortgages contain an automatic renewal clause with terms that range from six months to five years. The length of time will vary depending on the type of property involved, how much has been paid off on the existing loan, the borrower’s creditworthiness, and market conditions.

For example, borrowers with “substantial equity” in their homes may have a renewal term of 10 years, while those with no equity usually have to renew for five. With this being said, the bank will not provide a more extended renewal option than the borrower needs or wants.

Borrowers who want a definite expiry date can choose a five-year option and then renegotiate the terms of their loans at maturity. Those who prefer to pay off their mortgages earlier can opt for shorter terms, such as 18 months or two years.

What Happens During Your Mortgage Renewal?

Once your mortgage has been automatically renewed, you will be required to sign another agreement with your lending institution. This document will list all of the original loan details along with the new interest rate, repayment date, amortization period, and other information.

The bank will not automatically save you money on your new rates or terms. To receive the best possible renewal package from your lender, you must call the institution during this time to negotiate a more competitive interest rate and term.

Let’s say that your mortgage is renewed at a higher rate than that on the original agreement. Then, it may be possible for you to refinance with another financial institution within a short period following its expiration. 

That particular strategy may spare you some of the higher associated costs involved with breaking before maturity, as well as those incurred from being charged an early termination fee by your current lending institution.

How Can Your Mortgage Renew Automatically in Canada?

If you need a new mortgage, consider how it will renew automatically in Canada. Some lenders offer personalized renewal terms tailored to your specific requirements. These may include:

  • The ability to lock in interest rates;
  • Mortgage renewal guarantees; and,
  • Loans with flexible terms.   

Pros and Cons of Automatic Mortgage Renewal

There are advantages and disadvantages for borrowers who choose to have their mortgages automatically renewed. For example, suppose you are out of the country or plan on moving far away from your property before the end of your fixed-rate term. In that case, automatic renewal may be beneficial because it reduces one more element that could prevent you from renewing.

On the other hand, if you expect rates to fall over the next few years, it might make sense for you not to renew your mortgage but instead opt for a shorter term to take advantage of lower interest rates. In this case, opting out of automatic renewal will give your lender less bargaining power when terms with you at renewal time.

The Bottom Line On Automatic Mortgage Renewal

Keep in mind that there may be a cost involved with breaking your mortgage agreement before maturity, even if your lender does not renew it automatically. However, you can avoid this expense by calling your lender before the automatic renewal date and negotiating a better deal.

If you are looking to acquire home loans, more information on Mortgage in Canada, loan rates in states of Canada, etc. let Best Mortgage Online help you.

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Difference Between Mortgage Refinance versus Mortgage Renewal

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When it comes to mortgages, there are many details involved. Mortgage in Canada allows Canadians to own landed properties despite not having the complete fund for the properties. A mortgage is a loan service on properties, which people have enjoyed over the years. Mortgage refinance and mortgage renewal is well-known mortgage terms in the mortgage business. These two concepts are used interchangeably but are different in operation.

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Mortgage renewal is more short-term, while mortgage refinance is extensive. Therefore, to correctly identify the difference between both, this article will discuss the details of mortgage refinance and renewal. Then, we will assess the differences in their operation. But first, let us begin with a definition of both.

What is Mortgage Renewal?

In simple terms, Mortgage renewal refers to extending the details of an existing loan. So, mortgage renewal is the act of negotiating the terms and conditions of a current loan contract, especially after the loan’s maturity. When a mortgage matures and you do not have the funds to pay it off, you can choose to renew the mortgage. This can be done based on the existing agreement. The contract would then be renewed for another period, thereby setting another maturity date.

What is Mortgage Refinance?

On the other hand, mortgage refinance refers to a total overhaul of the loan details, unlike mortgage renewal, which simply extends the existing mortgage contract. Mortgage Refinance is the replacement of the existing loan details with a new one. This happens after the maturity of the mortgage; you then renegotiate with the lender to create another mortgage with new details if you are unable to pay off the debt.

Differences between Mortgage Renewal and Refinance

Before we assess the differences between the two concepts, let us first identify the few similarities between them. There are not many similarities between renewal and refinance. The situation that leads to either of the mortgages can be compared for similarities. Mortgage renewal and refinance can only happen at the maturity of the loan. If a loan does not expire or mature, there is no need to renew or even create a new loan detail. Also, mortgage renewal and refinance do the same job of maintaining the existing contract of the loan.

Despite this, there are various situations that you might need to renew or refinance a loan. But in all, it depends on the condition of the individual. 

Here are some differences between a mortgage renewal and a mortgage refinance.

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Type of Loan

The mortgage renewal and mortgage refinance both have different types of loans. Often mortgage renewal is applicable for short-term loans, loans that last one to two years with interest. These types of loans are known as open-ended loans. These loans are easily adjusted and include payment of interest. These loans are short-term, lasting between one to two years of maturity. Some of the types of loans that can be renewed are time notes, letters of credit, lines of credit. The details of these loans, such as the interest rate, the credit limit, do not change. The only thing that changes is the maturity time. A maturity time of about one year is often agreed upon.

While mortgage refinances are typically for close-ended loans. These loans are often longer and include amortizing loans, vehicle loans, commercial mortgages, and the likes. In this case, the lender does not renew the existing loan but replaces it with another.

Details of the Loan

Another primary difference between mortgage renewal and refinance is the mortgage details. However, both of them can be done in a way that the details of the loan, such as the credit limit, maturity date, and interest, can remain the same as the previous loan. But oftentimes, the details of the mortgage refinance are different from the previous loan it replaced. The lender renegotiates a maturity period with the borrower as well as a new interest rate.

Therefore, a mortgage refinance involves a complete replacement of the loan after the initial one has matured.  

Bank and Borrower

For a mortgage renewal, the bank or lender often approaches the borrower. While for a mortgage refinance, the borrower is usually the one who approaches the lender.

When the maturity period of the initial loan is almost up, the bank often contacts the borrower to give them options they can take. The borrower is informed that they need to pay the loan in full or submit their financial details for review. After their financial information is reviewed, the lender will now notify the borrower if they can renew their loan or not.

While for a mortgage refinance, the borrower approaches the lender. In this instance, the borrower contacts the lender to create a new loan. This contact can be with the current lender or an entirely new lender. The refinance process is simply like starting a new loan. You would have to file all required financial documents and supporting documents to the lender.

Conclusion

In summary, there are similarities between mortgage renewal and mortgage refinance. Although there still exist stark differences between both of them. The similarities often end in a way that they both occur after the maturity of a loan and the maintenance of the details of the existing loan.

But in terms of differences, they vary from the type of loans, open-ended to close-ended loans. Even the details of the loans differ from each other. The process of applying for each differ, as discussed above. Therefore, we can state that each has its usefulness and need in each situation from the above discussed. Applying for a refinance is best when a client cannot extend a loan but ensure that you get a mortgage. Although, this might be with a new lender and with new details.

These are the main differences between a mortgage renewal and refinance. So, when your mortgage is about to mature, you know the options available to you. And you also know the best option available to you based on your situation.

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What is a Prepayment Penalty in Canadian Mortgage?

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First off, it appears to be unfair. The concept of an extra payment even when you aren’t doing anything malicious seems a bit harsh. This is why you should explore more to find out all you need to know.

In general, a prepayment penalty or a breakage cost is a mortgage fee. A mortgage fee comprises of 3 months interest which your mortgage lender will charge upon the occurrence of certain circumstances. These circumstances are:

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  • When you make payments more than the accepted additional payments towards your mortgage;
  • Breach your mortgage agreement with your mortgage lender
  • Alienate or transfer your mortgage to someone else before the expiration of your term. The person you transfer it to then continues your mortgage payment from where you stopped. Although to do this, you need the approval of your mortgage lender. 
  • When you pay the mortgage fee earlier than the expiration of its term. Although, if your mortgage is an open mortgage, you will not pay a prepayment penalty when you pay your mortgage in full in a lump sum. 

Canadian mortgage system requires Prepayment penalties or prepayment charges. So, contrary to what most people think, your mortgage lender isn’t trying to pull a fast one on you. In this article, you will get to learn more about the prepayment charge.

Prepayment Penalties Explained

Naturally, when everyone signs a mortgage contract, they do so, intending to complete their mortgage terms, pay off the mortgage fee, sell or transfer the said mortgage, or pay more than they should each month. Although it happens, people don’t plan to breach their mortgage obligations. These breaches are why stress tests exist. 

A prepayment penalty or charge is the money your mortgage lender collects when you do something else than seeing your mortgage through to its prescribed term. This prepayment term consists of a minimum of 3 months, and it exists to protect your mortgage lender, or so people think. Although this charge exists, even the mortgage lender makes a profit, it perpetuates the mentality that it only benefits the lenders.

Furthermore, when you look at the prepayment penalty from the angle of a mortgage borrower paying off the principal amount in a shorter term than agreed, the mortgage borrower would have no interest to charge. Interest is how mortgage lenders make money from your mortgage. The longer the term, the more interest they get. Paying the mortgage off earlier would prevent this.

While we don’t dispute that the penalty gives mortgage lenders a particular advantage, people shouldn’t forget that these lenders take on risks with the mortgage. They bear the brunt of borrowers defaulting on their obligations. So, while this prepayment penalty or charge favours mortgage lenders, it is there to ensure that borrowers complete their obligations.

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For instance, most times, mortgage borrowers in Canada don’t complete their loan term because they sell the house. Now, selling the house while escaping the mortgage obligations could negatively affect the mortgage lenders. So, the prepayment penalty or charge gives lenders financial assurance. As if this isn’t enough, mortgage lenders wouldn’t allow you to sell your mortgaged house to someone they disapprove of. So, lenders are protected at all fronts. 

Even though mortgage lenders are trying to ensure to don’t run into a loss, this is overkill. They have high enough power when it comes to mortgages. They have the power to arbitrarily refuse the person you want to sell or transfer your mortgage to. Mortgage lenders are trying too hard to make too much profit. From the risk angle, they have other remedies to ensure borrowers’ commitment.  

Apart from the fact that a prepayment penalty or charge gives the mortgage lender financial assurance in the form of extra profit, the prepayment penalty or charge itself is expensive. We can understand why no one wants to pay it. It makes the whole process more costly than it should be. 

The Due on Sale Clause

As mentioned earlier, prepayment penalties or charges are part of the Canadian Mortgage system. As such, they feature in a standard mortgage contract.

Remember, the most common reason mortgage borrowers pay prepayment penalties or charges is because they want to sell their mortgage. Interestingly, you can sell said mortgage, but this doesn’t mean you are free from financial obligations. Cue the ‘Due on Sale’ clause, which triggers the prepayment penalties or charge. 

Mortgage lenders can approve or refuse the person you want to sell your mortgage to. The due on sale clause gives them this power. So, you might not even be allowed to pay prepayment penalties. Your mortgage lender would prefer that you complete the mortgage payments before selling them off to another person.  

This power that mortgage lenders have is somewhat arbitrary and subjective. They can decide to decline four transfers because the person you want to transfer the mortgage to isn’t creditworthy by their standards. Lenders have quite the power. Also, do borrowers. You can shop for who you want.

Is the Prepayment Penalty Enforceable?

This is the million-dollar question. Ordinarily, prepayment penalties are unenforceable because of Canadian contractual law. When a mortgage borrower breaches the mortgage, the seller is entitled to the borrower’s deposit. However, this is only when the deposit is a proper estimation of liquidated damages. So, on the surface, there is no room for prepayment penalties, but mortgage lenders found a way out. 

The Canadian courts offered mortgage lenders a way out by declaring that a prepayment penalty or charge isn’t a contractual penalty per se. The court’s view is that the mortgage borrower is attempting to get out of an agreed contract early. So, the payment which the bank demands, which is the prepayment penalty, is not a penalty per se. 

The court declared that such payment is like a payment that the bank demands as compensation for getting out of an agreed contract earlier than the stipulated time. There is a catch. Such prepayment penalty or charge must be reasonable. It must not be exploitative. 

Conclusion

The prepayment penalty or charge can look unfair, but it is the financial reality of the Canadian mortgage system. You must conduct proper research before you choose a mortgage lender. Call us at 1-855-567-4898 for more Mortgage advice, Mortgage rates, and more. We are Best Mortgage Online.