As 2.5 million Canadians prepare to renew their mortgages in 2024 and 2025, many will face higher interest rates compared to when they originally locked in. If you’re one of them, it’s crucial to be informed and make strategic decisions that could save you thousands of dollars over the life of your loan. Here are some key points to consider when renewing your mortgage:
1. Negotiate Your Renewal Rate
When your mortgage term ends, don’t automatically accept the first renewal rate your lender offers. Many homeowners don’t realize they have the power to negotiate a better interest rate. Do your research, compare rates, and approach your lender with competing offers to secure the best possible deal.
2. Consider Changing Lenders
If your current lender doesn’t offer a competitive rate, consider switching to a new one. Many lenders provide incentives for new customers. However, switching lenders will require you to re-qualify for the mortgage, meaning your financial situation will be reassessed. Be sure to weigh the benefits of a lower rate against the potential hassle of reapplying.
3. Make a Lump Sum Payment
Did you know only 2% of Canadians take advantage of making a lump sum payment during their mortgage renewal? Making a lump sum payment can significantly reduce your principal balance, which in turn lowers your overall interest costs and shortens the length of your mortgage. If you have savings or windfall cash available, this can be a smart financial move.
4. Extend Your Loan Term to Reduce Payments
Worried about the higher monthly payments that come with rising interest rates? One option is to extend your amortization period back to its original length. For example, if you have 20 years left on your 25-year mortgage, you can extend it back to 25 years. This can lower your monthly payments but will increase the total interest paid over the life of the mortgage. It’s a trade-off between immediate affordability and long-term cost.
Conclusion
With rising interest rates and significant changes in the housing market, mortgage renewals in 2024 and 2025 will require careful planning. Negotiating, exploring other lenders, making lump sum payments, and extending loan terms are all strategies that can help you manage higher costs and make the most of your mortgage renewal. Don’t let your renewal catch you off guard—plan ahead to save money and protect your financial future.
