Many Canadians will need to renew their mortgages multiple times before fully paying them off. Approximately 3.4 million Canadians are slated to renew their mortgages by the first quarter of 2025. The Bank of Canada reports that mortgages worth about $251 billion are due for renewal this year, with an additional $352 billion in 2025. By 2024, 80% of all mortgages active as of February 2022 will undergo renewal, and nearly all outstanding loans will renew by 2026.
A significant challenge for these borrowers is the renewal occurring amidst a markedly higher interest rate environment. Since the lows experienced during the pandemic, both fixed and variable mortgage rates have surged by more than 400 basis points. The Bank of Canada projects that, depending on their mortgage type, renewing borrowers could see their monthly payments rise by 25% to 54%.
Here are the main points:
Mortgage rates have risen significantly since early 2022 due to rate increases and market volatility.
80% of all mortgages from March 2022 will need renewal by 2024.
By 2027, the Bank of Canada predicts some borrowers could see their monthly mortgage payments rise by up to 54%.
Borrowers have options to lessen the financial impact of renewing their mortgage at higher rates.
Maximize Your Mortgage Renewal: Essential Financial Insights
A mortgage renewal is the process of extending the remaining balance of your mortgage for a new term, ideally at a lower interest rate.
You’ll know it’s time to renew when your mortgage provider sends you a renewal slip in the mail, which includes a new rate and term offer that you can sign and return.
However, with today’s rising interest rates, it’s wise to be proactive. Since March 2022, the Bank of Canada has raised its key Overnight Lending Rate ten times, causing variable mortgage rates to soar from 0.9% to 5.95%. Fixed mortgage rates have also climbed, with bond yields hitting a 16-year high. Currently, fixed rates are around 4.84%, up from 3.5% at the start of the year.
If you’re renewing your mortgage in 2024, you’ll likely face higher rates than five years ago. In this environment, with elevated rates but potential cuts expected in late 2024 and 2025, carefully consider the type of mortgage that will best suit your needs.
Top Mortgage Renewal Tips to Minimize Financial Impact
Evaluate Your Financial Objectives
Before you renew your mortgage, carefully assess your financial objectives. Ensure that your current lender provides a mortgage product aligned with your requirements. For instance, if your existing mortgage is a 5-year fixed-rate term, the renewal will probably be for another 5-year fixed term. If you anticipate staying in your home for that duration, that’s suitable. However, if you foresee a possibility of downsizing or relocating to a different city within the next few years, it might be prudent to consider a 3-year term instead.
Begin Shopping Around Early for Mortgage Renewal
How soon can you renew a mortgage? While your mortgage maturity date may still be a few months away, the saying “the early bird gets the worm” applies perfectly to the mortgage renewal process.
Typically, your current lender will send you a renewal slip within the last 30 days of your mortgage term. However, you can often begin negotiations up to 120 days before your maturity date. To prepare, locate the maturity date on your mortgage contract (it might also be accessible via online banking) and count back 120 days on a calendar.
Negotiate a Better Mortgage Rate: A Strategic Approach
When you receive those seemingly convenient mortgage renewal slips from your lender, they make it too easy to quickly answer the question, “Should I renew my mortgage now?” However, this convenience comes at a cost. Typically, lenders offer existing customers a slight discount off their posted rates on these renewal slips. But this isn’t the lowest rate you can get, even from your current lender. Additionally, there are often more competitive rates available from other financial institutions.
In today’s rising interest rate environment, negotiating a better mortgage renewal rate becomes even more crucial. By taking the time to research and negotiate, you can secure a more favorable rate, potentially saving you thousands over the life of your mortgage.
You’ll know it’s time to renew when your mortgage provider sends you a renewal slip in the mail, which includes a new rate and term offer that you can sign and return.
