With the Bank of Canada engaged in an ongoing battle against inflation, both current and prospective homeowners have been hit hard by consistent rate hikes. As mortgage rates surge due to increasing interest rates, the prospect of renewing mortgages becomes a cause for concern among many homeowners.
If you find yourself up for renewal this year, it’s likely that you’ll experience higher monthly payments due to significant increases in both variable and fixed mortgage rates. The nine rate hikes since March 2022 have driven the overnight lending rate up to 4.75%. Despite the increase, there are several strategies you can employ to potentially save money in the long run. Here are three valuable tips to consider for your mortgage renewal:
Consult your mortgage broker early.
Seek professional guidance and avoid navigating the renewal process alone. If you intend to search for a new lender, begin your search at least 120 days before your renewal date, as lenders typically won’t initiate the process earlier. Engaging in direct communication with a broker, either over the phone or in person, may lead to attractive loyalty or branch discounts.
Be aware that if you switch lenders, you’ll likely undergo another stress test using a higher interest rate than your previous term. Exploring alternative lenders might be an option, but keep in mind that this could result in higher rates and different qualification requirements, which may affect your ability to manage payments.
Consider a short-term fixed rate.
Opting for a fixed-rate mortgage can offer stability and predictability in your monthly payments. While this means your payments won’t decrease if lending rates do, it does ensure protection against higher payments when interest rates increase. Choosing a shorter term for your fixed rate might lead to better rates during your next renewal, offering potential long-term benefits.
Extend the amortization period.
You’re not obligated to stick to a 25-year repayment period when you renew your mortgage. Extending the repayment timeline can make your monthly costs more manageable. However, bear in mind that this approach comes with some downsides, such as a longer time to pay off your mortgage and slower equity buildup. Additionally, the total interest paid over the extended period will be higher.
