Until recently, homeowners looked forward to renewing their mortgages as they were likely renewing at a lower rate and had several financial institutions competing for their business.
Consumers were negotiating from a position of power knowing they could leave without penalty if their demands were not met.
This is no longer the case as much of the negotiating power has shifted back to the financial institutions due to the expansion of the mortgage stress test.
When your mortgage is up for renewal, your financial institution will mail a letter stating the new term and interest rate of your mortgage. In most cases, you are not subject to the mortgage stress test and are simply signing the letter to renew your mortgage — easy.
The downside to signing the renewal letter is that you are giving up your ability to negotiate. Unfortunately, if a competitor offers you a better rate you want to accept, you will be subject to the stress test to re-qualify for your mortgage.
As of January 1, 2018, all home buyers, regardless of the size of their down payment are subject to the stress test. The purpose of the test is to assess a buyers’ ability to afford mortgage payments at higher interest rates.
Borrowers must qualify based on the greater of Bank of Canada qualifying rate or your contracted rate plus two per cent. It’s a federal initiative, so only banks must follow the new rules. However most provincial-run financial institutions, such as credit union, have voluntarily adopted the stress test’s higher standards.
If you fail the stress test, you will not be able to move your mortgage and will have to accept the rate your existing lender is offering. If you are confident that you can pass the mortgage stress test, go ahead and shop around.
Gather all of the competing offers and request your current lender match the rate and/or conditions. If they are unable to so, consider moving your mortgage if the discrepancy is large enough and the new lender is willing to absorb most of the start-up costs.
I would also suggest you speak to a mortgage broker as he or she can determine the competitiveness of your renewal offer and your likelihood of passing the stress test.
If it is determined that you can pass the stress test, a broker will lay out the various options so that you are able to make an informed decision.
My top 5 tips for someone renewing their mortgage:
I am often asked what term and type of mortgage I would recommend.
When rates were declining, my product of choice was a variable mortgage. However last year, as rates began to rise, I locked into a fixed seven-year mortgage. This was the right choice for me, but everyone’s circumstances are different, so find a good broker who can walk you through all your options.
Our decision to purchase a house was sudden and unexpected. Harry Saund was highly responsive, clearly and deliberately laying out the pros and cons of our financing alternatives and helping guide us towards a decision. He was also extremely service-oriented in helping us pull the necessary information together in short order and coordinating the exchange of information between the necessary parties to comfortably close on time. We would use Harry again in a heartbeat.
The team at Majestic Mortgage is knowledgeable, prompt and professional. They brokered the best deal at the best rate which is exactly what me and my wife wanted. They made the process easy and were always available to answer whatever questions we had, large or small. They were accommodating to my schedule and were willing to meet me when I wasn't able to meet at their offices. I highly recommend their services and will definitely use them again.
Harry is very knowledgeable in the mortgage industry. He has taken care of my clients very well and he can get the job done! Would definitely recommend his services!
Buying a first home is incredibly stressful, and for someone without a financial background securing a mortgage is the most confusing part. Harry Saund was able to boil down all the rates and acronyms into logical information we needed to make the right decision. Harry went out of his way to make sure we got the best available loan at the lowest possible rate. I recommend Harry to anyone in the market for a mortgage.
These guys are awesome! I had them work on my personal mortgage, which is no easy task as I’m self employed. Both Donata and Harry were amazing. They helped me through the process and guided me through all of the hoops I needed to jump through. Overall great experience 👍