Concerned About Your Mortgage Renewal?

With rates on the rise and tougher qualification standards, you might feel trapped when it’s time to renew your mortgage. If you can’t qualify to switch or refinance, you could end up stuck with whatever rate your current lender offers. But there are ways to potentially save money and find a better deal. Here’s how.

Don’t Wait Until It’s Too Late – Act Now

Gone are the days of ultra-low interest rates. With current rates significantly higher, it’s crucial to find the best options when your mortgage renewal comes around. Not only might you face a rate increase of 2-4% for renewing a 5-year fixed rate, but the higher stress test could also make it harder to qualify with another lender.

If you can’t switch lenders, you’ll be at the mercy of your current lender’s renewal rate. However, there are strategies to help you find better rates and save money.

Understanding the Impact of Higher Qualifying Rates

When you initially took out your mortgage, you likely qualified using the federal stress-test rate. Due to recent rate hikes, lenders now have to ensure you can still afford your payments if rates increase by another 2.0% (e.g., from a 5-year fixed rate of 5.25% to a stress-test rate of 7.25%).

Even if you’ve been making your payments on time, the higher stress test may affect your ability to qualify for a new lender this time around, limiting your options for better rates or lower payments. Note that you won’t need to re-qualify if you renew with your current lender.

Strategies to Find Better Rates

Insured Mortgages: Switch for a Better Deal

If you have an insured mortgage, you may not need to face the stress test to switch lenders. You can qualify at your mortgage contract rate, giving you the flexibility to shop around for the best deal rather than accepting a higher offer from your current lender.

Extend Your Amortization

If you have built up equity, you might be able to lower your monthly payments by stretching your amortization up to 25 years. This can lower your debt ratios and help you qualify for a mortgage switch. Once set up, you can use flexible pre-payment options to make extra payments and catch up on your amortization.

Considerations:

• Legal fees for collateral mortgage transfer (~$600-$800)
• Possible appraisal
• Home must be valued under $1M
• Rate offered depends on borrower details

Refinancing for Lower Payments

If switching isn’t an option, you might still lower your payments by refinancing with your current lender to extend your amortization up to 25 or 30 years. This typically requires:

• 20% or more equity in your home
• Legal fees (~$600-$800)
• Possible appraisal
• Likely not eligible for the lowest-advertised rates

Making a Lump Sum Payment

If you have extra funds, making a lump sum payment at renewal can allow you to extend your mortgage term for lower payments, even if you can’t switch to a better rate.

Shorter-Term Fixed Rates

Despite shorter-term fixed rates being higher than the standard 5-year option, some clients opt for 2 or 3-year terms. This way, they can renew sooner into potentially lower rates and avoid penalties for breaking a longer-term mortgage early.

Variable-Rate Mortgages

With most rate hikes behind us, consider if a variable-rate mortgage might make more sense for your situation. If you’ve managed rate hikes with an ARM or VRM product, sticking with a variable rate might offer future relief without the penalties associated with breaking a fixed term.


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