Mortgage Renewals
Opportunities at Renewal: Making the Most of Your Mortgage Renewal
Your mortgage renewal is more than just another date on the calendar—it’s a valuable opportunity to re-evaluate your financial situation, explore new possibilities, and align your mortgage with your current goals. At renewal, you’re free to make changes without penalties, so let’s dive into your options and what they mean for you.
1. Accept the Renewal Offer from Your Current Lender
What it is: This is the simplest option. Your current lender sends you a renewal offer, and you sign to continue your mortgage as-is, possibly providing updated documents such as a recent pay stub, property tax statement, and proof of home insurance.
Pros:
- Ease and simplicity: No new applications or in-depth paperwork.
- Familiarity: You’re staying with a lender you already know.
- Time-saving: Quick process, perfect if you don’t want to shop around or make changes.
Cons:
- Potentially higher rates: Your lender may not offer the most competitive rate available in the market.
- Limited flexibility: You might miss out on better terms, benefits, or services another lender could offer.
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Pro Tip: While 70% of borrowers simply sign their renewal offer, it’s worth comparing rates and terms to ensure this option is truly the best fit for your financial goals.
2. Switch or Transfer to a New Lender
What it is: This option involves moving your mortgage to another lender, often to secure better rates, terms, or services that align with your needs.
Pros:
- Customizable Terms: Adjust your payment frequency and prepayment options.
- Rates: Switching lenders could save thousands over the term
- Opportunity for Cash-Flow Relief: a longer amortization can provide more breathing room in your monthly budget – see collateral transfer
Cons:
- A new/updated application and documentation – income and property documentation
- Potential Lee Fee when you push out the amortization – see collateral transfer
- No loyalty Discounts: Your current lender may offer incentives to stay.
Increased Payment:
When transferring your mortgage to a new lender for a better rate, it’s important to note that the existing amortization schedule will be maintained. This means your remaining balance will be spread over a shorter time frame (as the amortization period decreases each year). While the lower interest rate can save you money over time, this shorter amortization will often result in higher monthly payments.
If cash flow flexibility is a priority, consider discussing options to extend the amortization back to 25-30 years (if eligible) to reduce payments. While this can increase overall interest costs, it may provide the breathing room needed to manage your monthly budget effectively.
Renewal is a pivotal moment to reevaluate your mortgage. Whether you stick with your current lender or switch to a new one, the key is aligning your mortgage with your financial goals. For Sarah and Michael, switching lenders provided the cash flow relief they needed to secure their family’s financial future.
Example of collateral transfer
Meet Sarah and Michael
Sarah and Michael are a busy couple with two young kids. Their mortgage was coming up for renewal, and like many families, they’d been feeling the squeeze of rising living costs. With $350,000 remaining on their mortgage and 18 years left on their current amortization, their monthly payments were manageable, but they didn’t leave much room for emergencies or savings.
They reached out to discuss their options, and we worked together to explore what a switch to a new lender could look like. Here’s what we came up with:
The Solution
- Lower Monthly Payments with Extended Amortization
- By switching lenders, Sarah and Michael were able to extend their amortization back to 30 years, significantly reducing their monthly payments. This gave them the breathing room they needed to handle unexpected expenses and start building an emergency fund.
- Competitive Rate
- The new lender offered a slightly better rate than their existing lender, which further reduced their overall costs.
The Downsides
Switching lenders at renewal isn’t without its challenges:
- Legal Fees
- Sarah and Michael had to pay legal fees (around $1,000) to finalize the switch. While this was a short-term expense, the long-term savings from the new terms outweighed this cost.
- Extra Documentation
- Changing lenders required updated income verification and property details, which took some time to gather.
The Results
With their new 30-year amortization and reduced monthly payments, Sarah and Michael now save over $300 per month, which they’re using to build a financial cushion and start a college fund for their kids.
Collateral Transfer (An Advanced Switch Option)
What it is: For mortgages with a collateral charge (often combined with a line of credit), this allows you to:
- Combine your mortgage and line of credit into one.
- Push your amortization back to the original term (e.g., 25 years) to lower payments.
- Use the equity to pay down debt, renovate, or achieve other financial goals such as pay for tuition, renovations, and high-interest debt.
Pros:
- Flexibility: Access equity without penalties.
- Consolidation: Combine debt and lower your overall monthly payments.
- Savings: Transfer fees are often covered by the new lender.
Cons:
- Potentially higher rates: Your lender may not offer the most competitive rate available in the market.
- Limited flexibility: You might miss out on better terms, benefits, or services another lender could offer.
Pro Tip: If you’re unsure whether your mortgage is a standard or collateral charge, I can help you figure it out and explore if this is a suitable option.
3. Refinance Your Mortgage
What it is: Refinancing allows you to access your home equity to fund major life expenses, consolidate debt, or invest. At renewal, it’s the perfect time to consider this option because there are no penalties for breaking your mortgage term.
How It Works:
You can borrow up to 80% of your home’s value minus the outstanding mortgage balance.
- Example:
- Home Value: $500,000
- 80% of Value: $400,000
- Remaining Mortgage: $200,000
- Equity Available: $200,000 – this is your money to do with as you please
Pros:
- Access to funds: Tap into equity to fund renovations, education, or even another property purchase.
- Debt consolidation: Pay off high-interest debt with lower-rate mortgage funds.
- Flexible use: Use the funds for anything from tuition to investment opportunities.
Cons:
- Legal and appraisal fees: Refinancing often requires a full application and fees.
- Increased borrowing: You’re taking on more debt, which requires careful consideration.
Pro Tip: Refinancing can be a smart move to regain financial stability or take advantage of opportunities, but it’s essential to weigh the costs and benefits with an expert.
How to Choose the Right Option for You
The best choice depends on your unique situation. Consider:
- Your financial goals: Are you looking to save, invest, or consolidate debt?
- Your current lender’s offer: Is it competitive, or should you shop around?
- Your lifestyle changes: Are you planning for renovations, education, or life events?
Let’s Explore Your Options Together
Renewal time is your chance to align your mortgage with your current and future needs. Whether you’re looking at staying with your current lender, exploring better rates elsewhere, or restructuring to access equity, I’m here to support you on your financial journey.
