11 avril 2019,
If you are a homeowner and currently have a mortgage, you are probably wondering if there is a way for you to save money on your payments.
You may have seen lower mortgage rates for your type of loan or found that you could get a much lower rate by changing lenders. Are you wondering whether it is possible for you to renew, renegotiate, or transfer your mortgage before the end of your loan term?
To answer your question, yes, it is possible, but it is not always advantageous! You have to do the math and analyze your situation carefully before making a decision. The first thing you need to know to make the right decision is how a mortgage renewal works.
Renewing a mortgage: how does it work?
When you take out a mortgage, you and your lender discuss the terms of the loan, including the mortgage rate, for a fixed term. The term of the loan can vary significantly, from 6 months to 5 or even 10 years. Most homebuyers usually go with a 3-5 year term. At the end of this term, you have to sit down with your lender to renegotiate the terms of the loan and to agree on a new term.
By law, your lender must send you a renewal notice 21 days before the end of your loan term. However, you will receive a multitude of offers from lenders from the last 120 days of your term. Why so early? Well, because they can give you a 120-day mortgage rate guarantee on their new offer. It is often at this point that it becomes advantageous to renew prematurely.
Nevertheless, some lenders can make offers well before the end of your term. It is up to you to assess whether you are interested in transferring your mortgage, or whether it is better for you to complete your term with your current lender.
Your mortgage is a legal contract and it is not as easy as you may think to change it before the end of the term.
In fact, if you do not complete the term of your mortgage, you may need to pay certain fees and penalties to compensate your lender for lost earnings. We are not talking about $30- $40 but rather fees and penalties of up to a few thousand dollars.
Let’s take a look at how these penalties can affect your renewal before the term of your mortgage.
Fees and penalties for early repayment or renewal of your mortgage
Since a mortgage is a legal contract, there are legal fees and penalties to pay in the event of early repayment. Financial institutions often use two methods to calculate the penalty amount to be applied in the event of early repayment, renewal, or pre-term transfer. The penalty is 3 months’ interest or the amount between the contract rate and the new rate multiplied by the number of months remaining from the term.
Very often, the amount of the fees and penalties is in thousands of dollars, so it is rarely advantageous to renegotiate with the same lender before the end of the term.
However, it may be advantageous to transfer your mortgage and renew your loan before the end of its term with another lender. Why? Well, very often it would be due to an interesting promotional offer, a rate cut that lenders give to attract new customers.
Why would it be advantageous to renew your mortgage before term?
To be honest, it is rarely advantageous to renew your mortgage before its term with the same lender. On the other hand, if you are lucky, your current mortgage provider may contact you shortly before the end of the term, even before the last 120 days, in order to offer you a renewal with a slightly lower rate.
This early offer is intended to pre-empt the offers of other lenders, and to sign you up again for a term of 3-5 years. Your lender will not charge you a penalty or fee to renew your loan sooner but be aware that this renewal offer will not arrive earlier than 2 years before the term. Often, it will be a few months before the term ends if your institution feels generous.
At this point, you could save on your loan for the new term by renewing early.
It is also possible to modify certain terms or conditions of your loan before the end of your mortgage such as the interest rate if you have agreed
with your lender in advance.
However, it is important to note that even if your current lender offers to renegotiate before the end of the term, the offer he makes to you may not be the most beneficial. In fact, you may receive offers from other lenders that are more advantageous, and in the end, you may want to transfer your loan before the term.
Why would it be advantageous to transfer your mortgage to a lender before the term?
In the banking world, the search for new clients is very important, and lenders are sometimes ready to make very advantageous offers to attract new clientele.
It may be that during the term of your mortgage, other lenders would contact you to present very attractive promotional offers. For example, you could get a rate of 3.3% and another lender offers to sign a new mortgage at a promotional rate of 2.7% with additional cash back of $1,500.
This offer may be very beneficial but you still have to do the math to see how much you could save on your loan versus the amount of the penalty you have to pay. For example, if your current lender will charge you $4,500 for prepayment and you can save $3,500 by changing lenders, it’s not a good idea to move the mortgage. However, if the savings would be more like $7,000 over 5 years, you will save $3,000 over 5 years by transferring your mortgage before term.
It is important to DO YOUR CALCULATIONS AND ANALYZE!
Start shopping within the last 120 days of the term of your loan term
Even if you have never received promotional offers or “great deals” that are worth it, you should still try to shop for the renewal of your mortgage in the last 120 days of the term.
In the world of mortgages, the secret to saving money is through SHOPPING AROUND AND COMPARING!
Indeed, the last 120 days of your term should be marked in red on your calendar because it is exactly the number of days that financial institutions can usually guarantee you a mortgage rate.
This means that you can shop within 120 days, even a few days before, and if you find a more advantageous loan offer, you can sign it in advance and book your rate.
Basically, you can shop for your new mortgage early and if you find something good, you can book your loan. This gives you plenty of time to shop around so you can get the best deals. Lenders will feel that your loan is complete and will make an advantageous pre-term offer to get you as a client.
It will be up to you to look at the offers and analyze them to see which is the most advantageous. If you do not know much about mortgages and want to be 100% sure that you have the best mortgage offer for you, it’s a good idea to consult mortgage brokers.
In fact, a mortgage broker could help you find the best mortgage rate available in the market by comparing more than 20 banks and will analyze your situation to ensure that you benefit from the most advantageous conditions when you renew.
But how can you find the best mortgage brokers?
Find the best mortgage brokers to help you renew your mortgage!
If you want to get the best offer when you renew or if you still want to renegotiate or transfer your mortgage before term, you should consult a mortgage broker.
It is quite easy and simple to find the best brokers in your area. All you have to do is fill out our form and you will be done with just a few clicks! You can compare 3 mortgage brokers of excellent reputation in your area and choose the one that suits you best.
Your broker will shop for your mortgage and compare more than 20 banks in a single loan application. He will also assess your file, your current loan, and all the conditions to see what are your best options.
You will benefit from his incredible expertise, absolutely FREE OF CHARGE.
All you have to do is fill out our 100% FREE and NO OBLIGATION form to connect with one of our broker partners.
By doing so, you will be assured of the best advice and the best conditions when you renew, renegotiate, or transfer your mortgage.
Fill out our form and start saving today!