Posted by John Doe
When it comes time to renew your mortgage, you’ll likely receive a renewal offer in the mail from your lender. In this offer, the lender will explain their market rate and term for renewing your current mortgage. You then have the option to take this offer.
However, it’s often more cost-effective in the long term to take a proactive approach to mortgage renewal. Thus, let’s explore some of our experts’ tips for mortgage renewal.
1. Review Your Financial Goals
Before accepting a renewal offer, make sure you’ve considered your financial goals for the future. For example, if your current mortgage is a five-year contract, then the renewal offer from your lender will likely also be a five-year offer.
However, you might wish to sell and downsize before the maturation date of the five-year mortgage contract. So, if there’s a chance you’re likely to be upgrading or downsizing your home within the coming few years, then you might ask for a shorter mortgage term.
Another significant element in comparing your financial goals with your mortgage offer is any prepayment options available to you. For example, if you’re expecting a gift from a relative soon, then this money could help pay off the mortgage quicker. Thus, ensure you consider any prepayment penalties associated with your new mortgage offer from the lender.
Take the time to consider your current financial position and any potential changes in the future. Then, analyze the lender’s offer carefully to ensure it aligns with your short-term financial objectives.
2. Proactively Ask for a Better Rate
One myth believed by many homeowners is that you cannot negotiate with the lender directly. Many believe the lender is already offering the best rate that they can when it comes time for a mortgage renewal. This is rarely the case, though.
You will likely be provided with several options when you ask the lender if their current offer is their best rate. The goal of the lender is to keep your business.
They know that the market is a competitive rate environment, and you have many other options and may take your business to one of their competitors. So, they are likely to offer some form of flexibility within their new mortgage contract. While they may not offer you a better rate directly, they may offer to waive penalties or allow you to prepay the mortgage at a faster speed in the coming years.
There are multiple factors to consider when evaluating the lender’s offer. Ensure that you review all the details carefully.
3. Ask for a Rate Hold
If you are proactively shopping around for a better rate on your new mortgage, you can ask the lender to provide you with a rate hold. This hold secures the offer rate for some time before your current mortgage maturation date. Lenders may be able to hold the rate for up to 120 days, thus giving you the time you need to analyze the offer and review the marketplace before making a final decision.
4. Monitor Your Credit Score Carefully
Many homeowners make the mistake of believing that once they have bought their home and secured their mortgage, their credit score has a limited impact on their finances. However, your current credit score will be a consideration for the lender when your mortgage term ends.
If your credit score went down during the mortgage term, then you could be at risk of having to pay a higher interest rate or have higher penalties placed into your new contract. Lenders make these changes to mitigate the risk of a mortgage default with high-risk borrowers. Therefore, to avoid becoming a high-risk borrower, make sure you proactively manage your credit score.
Consider your current debts and review options for paying your debt down on schedule. Take some time to review high-interest rate credit card debt, as this can severely impact your ability to pay your mortgage. Having a large amount of credit card debt on your file will reduce your credit score significantly.
If you have a high amount of debt and you’re currently looking into acquiring a new mortgage, then speak with your financial institution about a loan that consolidates each of your debts into one monthly payment.
If your lender sees you taking proactive steps to manage your debt levels, they may then be able to offer more attractive lending terms on your new mortgage.
5. Consider Your Refinancing Options
The end of your current mortgage term is the best time to consider your refinancing options.
If you’re planning a new renovation or if you wish to make use of current equity for a large purchase, make sure you analyze your financing options as your current term finishes. Refinancing at this stage helps you avoid some of the penalties associated with refinancing during the term.
Before you refinance, though, make sure you consider how long you wish to live within the home. Are your children going to be leaving for school before the new mortgage ends? Will you want to downsize to save money for retirement? Speak with a mortgage expert to review these questions and analyze the potential value of refinancing your mortgage.
6. Analyze the Interest Rate Changes
Before you enter into a new contract with your lender, analyze how the interest rate has changed in recent months, and review your range of renewal options. In a low-interest-rate environment, you might have several options for renewal.
Meanwhile, if interest rates are rising, you might want to lock down a low rate as quickly as possible. In the current market, experts recommend a variable rate that allows you a little more payment flexibility. However, ensure you proactively speak with your lender about your options if you notice that the rate is rising in the months before your current mortgage term ends.
Our experienced team at Mortgages Mortgages has decades of experience helping clients analyze their mortgage options and choose products that save them money for the long term. To learn more about our services and how to protect your finances during the mortgage renewal process, please call us today at 416-969-8130 or contact us via our site.