Here’s a crazy statistic: 80% of all mortgages outstanding as of March 2022 are coming up for renewal in 2024. This amounts to approximately $250 billion in mortgages. 2025 is expected to be an even bigger year with a whopping $350 billion in mortgage renewals expected. Although rate cuts are within sight, between now and 2026, almost all mortgage holders will see an increase in their mortgage payments – some as high as a 54% increase.
If you’re reading this, it’s likely you fit this bucket and are worried about what’s ahead. So, what should you do to ensure you’re making the right choice at renewal? Here are 6 things to consider before your mortgage renewal to make sure you’re getting the best deal and considering the best options.
- Speak to your mortgage broker or bank at least 90 days before maturity. You might be interested in considering alternative options (a mortgage switch or refinance). Or, at the very least, your trusted mortgage broker can provide an honest second opinion and feedback that might help with mortgage rate negotiations.
- Prepare early – don’t wait until the last minute. This goes hand in hand with #1. Too often, we have people call us just 1-2 weeks before maturity (sometimes as little as days before). Allow yourself enough time to consider all viable options. Also, ‘early mortgage renewal offers’ as the banks refer to them, go out sometimes as soon as 120 days before maturity.
- Consider a shorter fixed rate term. Unlike most years before 2020, shorter-term fixed-rate mortgages are growing in popularity because of present high rates, and their expected decline within the next 24 months. Considering shorter fixed terms (1, 2, or 3 years) will allow you the flexibility to lock into a lower rate sooner than a 5-year fixed would allow.
- Consider a variable-rate mortgage. Alternatively, if you’re a little more risk-tolerant, consider a variable rate term rather than a fixed term. Doing so will allow you the flexibility to break your mortgage with the lowest penalty clause (especially if you foresee major changes within the term of the mortgage – for example, a sale, downsize, or upsize). A variable rate term will also reap the benefits of upcoming rate cuts, which are expected to begin by mid-2024.
- Extend your amortization. If your bank allows for it in the mortgage renewal process, increase your amortization to help reduce your mortgage payment. This might not completely offset the increase in your payment due to higher rates, but it will help improve your cash flow. Most banks will allow amortization as high as 30 years. Select banks might allow as much as 40 years to certain clients.
- Consider a mortgage refinance. A simple mortgage renewal isn’t your only option. A refinance might be the right choice for you, especially if you require additional funds through an equity takeout. Maybe you need to consolidate debt, invest in another property, or renovate your home to improve its value. A simple renewal with your existing bank will now allow you this option.
2024 and 2025 are going to be big years for mortgage renewals. We’re in a high-interest rate environment, so having the right guidance and options now is more valuable than when rates are low. If you work with a Mortgage Broker at CMS, you’ll be getting over 36 years of industry experience. Call us today and ask for Neil or Aman. (905) 455-5005.