2023 Mortgage Renewals
“Let’s face it, we are well into a housing affordability crisis. Canadians’ biggest expense every month is keeping a roof over their head. Today, that became even more difficult. The Bank of Canada has again increased the interest rate by a quarter point, bringing it to 5%. This could very well be the straw that breaks many borrowers’ backs.”
Statement by Lauren van den Berg, President & CEO of Mortgage Professionals Canada on the July 12th
Interest Rate Increase
Interest rates are likely higher than when you first bought your home. For example, if you bought or renewed in 2018, your fixed rate would have been around 3.5%. On a $400,000 mortgage, your monthly payments would be ~$1997.00. When you renew that five-year mortgage in 2023 at a rate today upwards of 5.84%, your monthly payments will increase to ~$2390. Variables are more drastic, prime-rate at the end of 2018 was 3.95%, compare that to today’s 7.20% using that same $400,000 loan amount example is a whooping ~$2093 then vs ~$2655 now.
Depending on how tight your budget is, hundreds of dollars in mortgage payment per month can make a big impact. If you’re looking to renew your mortgage, here are some steps you can take to potentially save you money.
Shop Around
When you renew your mortgage, you don’t have to stay with the same lender. Your current lender may provide you a competitive renewal offer, most do not want to lose a borrower. However, it may not be the best rate or mortgage for you any longer and there could be promo’s
or other options available to you. If a competitor is offering a better rate, you can switch lenders! And (generally) at $0 cost to you! Don’t just sign the dotted line on your lenders renewal, do some research – or better yet, let a mortgage broker do it for you!
Add more down payment
At renewal time, you can prepay your mortgage any amount without fee or penalty. If you’re able to (I know, most don’t have extra funds these days, but…) put down as much as you can toward the principal, this will lower your monthly payments.
Consider extending your term with a refinance
At renewal, the mortgage is re-set based on the remaining amortization you have. If you refinance, you can extend the amortization back out to 25 (or 30 in some cases) years. If you have a longer amortization period, your monthly payments will be reduced. You may pay more interest over the course of the mortgage if you take the entire new amortization period to re-pay the loan; however, this immediate help will reduce the monthly stress on your budget (and you can use prepayment privileges when times are better to shorten the amortization and save interest costs).
Fixed-rate mortgage
Fixed-rate mortgages offer predictable payments for a closed term. This makes it easier to budget since your rate doesn’t change over time. Unlike variable rate mortgages that will change with the lenders prime lending rate.
If you choose a fixed-rate mortgage, you can lock in for *1-10 years (*varies per lender). Considering a 2-3 term may give you consistent payments in the meantime; but not lock you in for so long to potentially miss out on savings when fixed rates start to decrease.
Don’t wait until the last minute
You know when your mortgage term ends, contact your lender/broker 90-120 days before and don’t wait until the last minute.
Candace Perko, Mortgage Broker
