This year it is estimated that nearly 50% of mortgages will be renewing here in Canada.
As an interesting coincidence, all manner of economists are forecasting the fixed rates to continue to climb until they end up between 4% and 5% by the end of the year. What does that mean for you?
It means that you want to pull out your mortgage statement to find out exactly when your mortgage is up for renewal and get proactive!
Why should you? First of it is free to switch your mortgage.
The new lender will cover the costs of the legal and the appraisal. Second of all, you can save a whole bunch of money!
A $300,000 mortgage in a five-year fixed rate over 20 years could look like this:
1. 3.34% – monthly payment of $1,711.80 on a balance of $242,488.83.
2. 4% – monthly payment of $1,821.74 on a balance of $245,615.73. That’s an increase of $6,596.40 in payments over the five-year term and an increase of $3,126.90 to the end of term balance.
That is an overall increase to borrowing costs of $9,723.30
3. 5% – monthly payment of $1,971.38, on a balance of $250,134.86.
That is an increase of $15,574.80 in payments and an increase of $7,646.03 to the end of term balance. That is and overall increase to borrowing costs of $23,220.83.
Please know that a mortgage switch/renewal to a new lender is not the same thing as a refinance.
With a mortgage switch you are literally moving the mortgage as is from lender A to lender B with no change to the amortization or the amount.
A refinance is when you are seeking to access additional funds for debts, investments or whatever. You can certainly do this but you will be responsible for the penalty, legal fees and possibly the appraisal.
The two often get confused and it is frustrating to be hit with unexpected fees.
Switch Step 1 – call your existing mortgage provider and find out what the penalty would be to break your current mortgage.
A mortgage which is switched from one lender to another is often able to cap in up to $3,000 of the penalty. This number is needed so you are able to make an educated decision as to whether or not you should switch out early.
Switch Step 2 – meet with a well-qualified mortgage professional to discuss your options. Look at all the options and terms including a variable rate. Right now there is a very slight difference between the five- and seven-year mortgage rate so it could be worth considering.
Switch Step 3 – if it all makes sense and you think it is in your best interests it is time to gather the paperwork. There may be additional items depending on your situation but this is a good start for sure.
1. Most recent pay stub(s)
2. Letter of employment(s)– on company letterhead, detailing length of tenure, job title, rate of pay, guaranteed number of hours.
3. Last two years Notices of Assessment – with the most recent year showing no taxes outstanding.
4. Most recent mortgage statement from current home.
5. Property tax bill from current home.
6. Home insurance policy.
Switch Step 4 – sign the papers with your mortgage advisor.
Arrange for the appraiser to come in. Set a time to meet with the legal service. Wait for the closing day. After that the mortgage will be taken from your account by lender Y instead of X with minimal disruption to your life.
This article is meant for information purposes only.
Though I wish I had a crystal ball, I do not and world events have caused disruptions in the past to economic forecasts as we know all too well here in Alberta.
As a mortgage professional, it is part of my responsibilities to bring attention to ideas which may save my fellow Canadians a pile of money.
Pam Pikkert is a mortgage broker with Mortgage Alliance – Regional Mortgage Group in Red Deer.