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.
Mr Harry helped us to get a good interest rate. He is very professional and good adviser. He has more experienced to help people to get good interest rates even they low credit score. I highly recommend him.
Absolute professional people with great knowledge of lending products offered by all financial institute with great service. They provided so in-depth knowledge for solving my financial crisis. They have earned a customer for life.
Excellent service. Most reliable. Very professional. Had a great experience. Highly recommended 👍
First of all I want to thank you Harry for your help in the mortgage refinance, thank you for taking the time to explain in detail all the process and for getting us the best deal possible. Because of your professionalism and friendly approach we found the process of refinancing our mortgage and consolidating our debts very easy. We are looking forward to keep working with you in our future plans. Thanks again.
Harry, we simply cannot thank you enough for all your assistance in buying our new house. You worked with us for over two years to make this happen. You were both patient and informative as our mortgage was anything but straight forward. You were also flexible with all the changes and last minute alterations that had to be made. We can't thank you enough for working with us, at all hours, day or night, to make this house purchase go as smoothly and efficiently as possible. We would not hesitate to recommend you!