Unlike the United States, Canada does not have fixed 30-year mortgage terms. Homeowners have no choice but to renew their home loans at least once to pay off their entire debt. They may also choose to refinance, particularly if they are not satisfied with their current loan and are looking for better options.
Mortgage renewal and refinance are two different things. Each has its own pros and cons, so it is best to study your options before committing. This way, you can avoid being in situations that will leave you worse off financially. The following discussion will help you differentiate mortgage refinance vs renewal.
Mortgage Renewal vs Refinance
Borrowers typically choose renewal when their loan terms end. A mortgage renewal is when you form a new agreement with the mortgage holder in order to extend your terms. If at the end of your deal and you have not paid the money in full, a renewal will allow you to continue payment using the previously agreed upon rate. With a renewal, most banks do not need borrowers to qualify again, so many find this a convenient option.
Meanwhile, refinancing mortgage loans means swapping your current deal with a different one. Some borrowers prefer mortgage refinance vs renewal since they can find more reasonable arrangements with lower rates. Another good thing about refinancing is that you do not need to wait for your loan period to end before you can apply. Mortgage aggregators in Ontario offer reasonable options if you want to take this path.
Is Mortgage Renewal For You?
Home mortgages in Canada are usually fully paid after 30 years, that is if you make payments on a regular monthly basis. The shorter-term means mortgagors have to renew or find a different lender. Mortgage renewal is easy enough to process. You will be receiving renewal papers from your lender that you have to sign to create a new loan. The new term will be based on your outstanding balance in your original mortgage.
While long mortgage terms allow you to pay lower monthly dues with a lower interest rate, it is not always the best route to take. Give yourself ample time to consider your options. Your mortgage holder will give you at least four months to decide if you want to renew. During this time, think about your financial situation. You may be surprised to find that you can choose a home loan with a higher payment that you can pay off sooner.
What is Your Current Financial Goals?
Examining your financial goals will help you make a decision about renewing. Your new term should be in line with your current and future needs. Renewals typically follow the arrangements in the previous mortgage, so if you have a five-year fixed rate, it will be the same in your new term. You may opt to change this and choose a shorter deal if you have plans to downsize or move cities. While monthly fees will be higher, the lower interest rate will be to your advantage.
Is There a Better Mortgage Rate?
The rate should be the foremost in your mind in deciding between renewal vs refinance mortgage. It is always best to negotiate for a better rate. During renewal, lenders tend to make the process easy for borrowers, even offering discounts to make them sign up without delay. When in doubt, you can always reach out to a broker and ask for a rate hold. This will protect you from rate increases for up to 120 days.
Should You Switch Lenders?
Switch providers and look for better offers if all negotiation fails with your current lender. Shop around early, several months before your mortgage maturity date arrives. The process is the same as if you are applying for a new mortgage. A leeway is good since it may take a week before your application is approved. You would not want to be stuck again with your current mortgage holder for the next term.
Should I Refinance Mortgage?
Between mortgage renewal vs refinance, some borrowers prefer refinancing. It allows them to choose a different loan with a better interest rate that is more manageable in the long run. Mortgage refinance follows the same steps as your first loan application. You must determine your preferred loan features, like if you want shorter term and lower interest rates or the opposite.
After deciding on your term length, it is time to look for qualified providers. Get at least four loan quotes to see your options. Once you have picked a lender, submit your application, and wait for the approval. Do not forget to review the terms and conditions in the contract. Mortgage refinancing is not free. There are several fees you have to settle, including appraisal, inspection, origination, and closing costs.
What are the Pros of Refinancing?
Refinancing has several advantages over renewal. It lets you save money over time and gain whatever you lost during the initial process of restructuring your loan. Some mortgagors get discouraged by the cost of changing mortgage and all the fees they have to pay upfront, that is until they understand all the benefits they can get later on. This is the reason why many choose the mortgage to refinance vs renewal.
Depending on market conditions, you can secure interest rates that work best for you. High credit scores will also make you eligible for refinancing loans with better terms. Unlike mortgage renewal, refinancing is the best choice if you plan to stay put in your home for a long time. Apply for a fixed-rate loan and avoid high-risk mortgages. Talk to your lender about your options. They will accommodate your queries if they want you in their business.
When is Refinancing Not the Best Option?
There are several conditions when you should avoid mortgage refinancing to pay off your debts. Refinancing is a bad idea if your lifetime loan costs will be higher than your old loan. Even if the monthly payment seems lower, be cautious. You may save money now, but it will cost you thousands more in the long run.
Refinancing is also not good if you have plans to move to a different city in the coming years. The money you saved may not be adequate to recoup all the fees you paid if you will end up leaving soon. If your new loan forces you to pay pre-payment penalties that will add to your total loan costs, you may opt to consider renewal vs refinance mortgage.