Renewals
Is it almost time for your mortgage renewal? If this is your first go-around with renewals, you might be curious about what to expect. Renewing your mortgage in 2023 brings a few changes compared to previous years. Let's dive into the essential details you should know as you navigate this process.
Understanding Renewals vs. Refinancing
Some folks get tangled up distinguishing between a mortgage renewal and a refinance. A refinance is optional for homeowners when their current mortgage setup no longer fits their needs. As life changes, homeowners might benefit from a different mortgage product. On the other hand, a renewal happens when your mortgage term ends and needs to be renewed. For instance, if your mortgage term spans five years, once those five years are up, it’s renewal time!
Options Available for Renewal
Many homeowners opt to extend their mortgage's amortization period during the renewal, effectively refinancing. This choice allows homeowners to spread out their mortgage term, resulting in lower monthly payments and less immediate financial strain. However, it also means a longer duration to pay off the mortgage. But for many, it's a way to manage finances more comfortably in the short term.
At times, homeowners choose to renew with a different mortgage lender. When your mortgage term concludes, you're not obliged to stick with your current lender. While some homeowners prefer staying with their existing lender and product if they're satisfied, it's essential to consider all options, especially if you're still uncertain as you approach your renewal time. Your broker can advise on whether a different lender or product suits you better.
Preparing for Higher Rates
In the past, homeowners often renewed their mortgage at lower interest rates. However, today's rates are higher than they've been in a while, so it's wise to expect a renewal at a higher rate than what you currently have. Consequently, your monthly mortgage payments will increase. While this might seem stressful, remember that interest rates are constantly in flux. If you're on a variable-rate product, your mortgage rate will drop when interest rates decline again. Those with a fixed-rate product might consider switching to a variable rate, anticipating potential rate drops in the coming year.
Every homeowner faces mortgage renewals, yet each experience remains unique. Your specific situation and needs will guide you and your mortgage broker to determine what's best when renewal time rolls around. If your renewal period is approaching, consider contacting your broker now to explore your options.