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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/Switch

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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Mortgage Refinance Mortgage Renewal/Switch

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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