Understanding the Renewal Process
If you’ve owned your home for a few years, you’ve probably experienced or will soon experience a mortgage renewal. It’s the point at the end of your mortgage term, typically every five years, where you renegotiate the terms for the next period.
About three to four months before your mortgage term ends, your lender will send you a renewal offer. Here’s what the banks don’t tell you: the rate on that renewal offer is almost never the best rate they can give you.
Why the First Offer Is Rarely the Best
Banks make money on the spread between what they pay for funds and what they charge you. If you don’t push back, they have no incentive to offer their best rate.
Additionally, acquiring a new mortgage customer is expensive for banks. Renewing an existing customer is much cheaper. This means your bank would rather keep you at a slightly lower rate than lose you to a competitor.
Start Early and Know Your Options
Don’t wait until the last minute. Start thinking about renewal four to six months before your maturity date. Your options include:
- Option 1: Stay with your current lender at a negotiated rate
- Option 2: Switch to a new lender (no prepayment penalty at renewal)
- Option 3: Renew and refinance to access equity or restructure
The Easy Wins at Renewal
Call and Ask for a Better Rate
Before you sign that renewal offer, call your lender’s mortgage department. Tell them you’ve received other rate quotes and ask if they can do better. Many banks will reduce the rate by 0.25% to 0.50% just from a single phone call.
On a $500,000 mortgage, that’s $1,250 to $2,500 saved per year.
Switching Lenders Is Easier Than You Think
Many homeowners stick with their current lender because they assume switching is complicated. In reality, at the end of your term, there’s no prepayment penalty to leave. The new lender typically covers your legal fees and any appraisal costs.
Real Example: What Negotiating Can Save
One of our clients came to us with a renewal offer from their bank at 5.29%. We found them an approval at 4.69%. That 0.60% difference saves more than $15,000 in interest over the five-year term.
Questions to Ask at Renewal
- Is this your best rate, or is there room to negotiate?
- What rates are available for shorter terms?
- What are the prepayment options?
- If I switch lenders, will you cover legal and appraisal costs?
- Is the mortgage portable if I sell and buy a new home?
Get Help with Your Renewal
If your renewal is coming up in the next six months, give us a call at 416-822-7357. We’ll make sure you’re getting the best deal possible.