Do you have a mortgage up for renewal in a few months? You may have received a letter from your bank offering you a chance to “renew early and save” or some similar wording. With the extremely low rates on offer, it could be a good idea to renew your mortgage early and take advantage of the savings – but make sure you investigate all your options before signing on the dotted line.
How You Save By Signing Early
The idea with renewing early is that you can lock into today’s current low rates before they go up. And, if you renew with the same financial institution that currently holds your mortgage, you can essentially break the old one without any penalty and start making payments at the lower rate. (If you do break your mortgage early and switch to another bank, you’ll have to pay a penalty, typically three-months’ worth of interest on the outstanding balance or the interest rate differential, whichever is higher.)
Thinking of breaking your mortgage? Use our Penalty Calculator to see how much you can expect to pay.
Let’s say you owe $400,000 on your current mortgage and it’s at a five-year rate of 3.5 per cent. If you renewed at a rate of 2.7 per cent six months before your mortgage term officially expires, you could save about $1,600 in mortgage interest payments over that half a year. (Based on a monthly payment where the interest portion is roughly $1,150 on a 3.5 percent term versus $890 a month in interest at 2.7 percent. Trying running the numbers yourself using our Mortgage Payment Calculator.)
Look Beyond Your Renewal Letter
Keep in mind, of course, that the banks aren’t doing this because they want you to save money. They’re doing it because they want to keep you as a regularly paying customer. No matter how enticing your bank’s offer seems, you should still shop around to see if you can get a better deal.
Keep in mind that most banks will offer to hold a rate for as long as 120 days (though some have shorter hold periods). That means that once you’ve been quoted a rate, they guarantee that rate will stand as long as you sign a contact within 120 days. And if the rates happen to drop during that period, you’ll still be eligible for the lower figure.
And it’s worth knowing your options; as of today, some of the most competitive lenders in Canada are offering 5-year fixed rates as low as 2.39 per cent. Click here to view the best mortgage rates in your region.
Meet With a Mortgage Broker
Mortgage brokers also often get better rates than those that are posted. At the very least, book a meeting with your current bank’s mortgage specialist to see if they’ll offer a discount on what was offered in the letter.
In its annual Mortgage Consumer Survey, the Canada Mortgage and Housing Corporation found that slightly more than half of respondents simply took the offer the bank made them. That means that half of us are probably spending more on our mortgages than we need to be.