When you reach the end of your mortgage term, if you still have a payable balance on it, you must renew the mortgage. You have two options. You can sign the renewal slip that your current mortgage provider sends you in the mail and renew the mortgage. Alternatively, you can search around the market for a new lender who has the terms, conditions, and interest rates that are better suited for your evolving financial requirements and objectives. Accordingly, it is advisable to do some amount of research at the time of renewal.
Start Shopping Early
When your mortgage is due for renewal, your mortgage provider will offer you the option of renewal in the 120 days before the end of the mortgage term. Should you take up this offer, you won’t incur the prepayment penalty that is applicable for breaking the mortgage term ahead of time. While you do have the option of accepting the renewal, a wiser option is to search the market for information about the more favorable terms and conditions available out there. As a result, you’ll be better equipped to negotiate for more economical interest rates and prepayment options, among others.
Consider Your Financial Goals
Typically, mortgage terms last for 5 years and in this time you might find that many changes have occurred in your life and financial conditions. Changing situations might need you to look for mortgage terms and conditions that are better suited for present times. Accordingly, you might want to assess your options before accepting the offer of renewal on the same terms as before. Here are the changes that most people see:
- Promotion or raise in income levels
- Loss of a source of income
- Additional member in the family
- Need to pay for a child’s higher education
- Possibility of a move in the next five years
- Need to access some of the equity earned on the property
Outline Your Mortgage Needs
Aside from changing financial objectives, you might want to assess the terms and conditions according to the other requirements you have. Here are some possibilities:
- You might have an increase in income because of which you want to raise the mortgage payments you make each month. Accordingly, you must evaluate the prepayment terms.
- You might think that you’ll have the necessary finances in the near future to pay off the entire mortgage sum. Accordingly, you should make inquiries about the prepayment penalty you’ll incur in case of both fixed mortgage rate and variable rate mortgages.
- You might expect to receive an inheritance or bonus that you would want to use to pay towards the mortgage. Accordingly, you must find out about the lump sum prepayment facilities your lender offers.
- You might be considering the possibility of selling the mortgaged home and/or moving to a new location in the next mortgage period of 5 years. Accordingly, you must choose a mortgage that assumable or portable.
- In case the value of the mortgaged property rises, you might want to borrow additional funds against it. Accordingly, you must consider your options for refinancing and the prepayment penalties you’ll incur. Alternatively, you could opt to move to a collateral mortgage.
Renew in the Last 30 Days
The law requires that your mortgage provider must send you a renewal offer a minimum of 21 days before the end of the mortgage term. However, your lender is likely to send you a renewal offer by mail 120 days to 30 days before the mortgage ends. He’ll also include the lowest possible posted rate that is valid for 30 days time. Accordingly, you need not worry about any potential increases in the rate in this time.
By this time, you’ll have conducted the necessary research to find out about the lowest mortgage rates available in the market. With this information in hand, you can request for the best offer your mortgage provider can offer you. Be aware, though, that most lenders may not agree to the new rates. For this reason, you may want to contact a mortgage broker and be prepared with better offers from new lenders.
Make a Decision
You have now gone through the necessary steps of making inquiries, assessing your family situation, gauging your future financial status, and considering the renewal offer from your current mortgage provider. You are now ready to make an informed decision about the most favorable mortgage rates available and the best provider. You have two options to choose from:
- You can opt to remain with your current mortgage provider. Accordingly, you can sign the renewal letter and return it by mail. Alternatively, you can discuss the issue with the provider and request for better terms.
- You can opt to switch to another mortgage provider for more economical interest rates. Accordingly, you’ll have to take care of the paperwork involved. You’ll submit an application with a new lender and provide the mandatory documents so he can assess you against his lending criteria. You might also pay various fees and charges for making the switch. Some lenders carry a part or all of the applicable fees while others may expect that you cover the charges with cash. For instance:
- Discharge fee
- Legal fee
- Assignment fee
- Appraisal fee payable for the verification of the value of your home