When you’re at the end of your mortgage term, and you still have a balance, you’ll need to renew or pay the balance off in full. Traditionally, the term for a mortgage is somewhere between one and five years. The length of the term dictates the length of the mortgage contract but not how long the mortgage will take to pay off. The amortization is another part of the mortgage you’ll get from a traditional lender. The amortization period is the time you’ll need to completely pay back the money you borrowed. Two standard amortization periods are 25 and 30 years.
The term is different from the amortization. So, if you took out a 5-year mortgage that began in December of 2019, the term ended in December of 2024.
Remember, there’s a difference between renewing and refinancing. Your lender will send you a renewal statement when you are near the end of the term. Read on to find out what you need to know to successfully navigate renewals.
How Does Mortgage Renewal Work in Ontario?
In Ontario, your lender is required to send you a renewal statement at least 21 days before the term is scheduled to expire. The document needs to include the following details:
- Any fees or charges that are applicable
- The remaining principal or balance that’s left on the date of renewal.
- The current interest rate
- The frequency of the payments.
- The term offered.
The statement also needs to affirm that the interest rate offered will stay the same until the next renewal date. It should also report if the mortgage will be renewed automatically if you don’t take any action. Depending on the lender, there might be other requirements.
When your term ends, you can modify your original agreement. It’s possible to change the length of the term. You can also adjust the payment frequency and the amortization period.
Beginning the process at the right time gives you some wiggle room to decide what you want to do. The first thing you’ll need to know about is the timeframe involved in getting this important part of home ownership done right.
Best Time to Start Your Mortgage Renewal?
It’s always a good idea to start negotiations before your current mortgage term expires. The best time is a few months out in front of the due date. This will give you enough time to negotiate the terms you want. You’ll be able to compare offers from different lending institutions and study the market. Many lenders will let you start the renewal process four months before the due date.
That’s generally the timeframe where you can renew early with the current lender without needing to pay a prepayment penalty for breaking the term.
Mortgage agreements are complicated. Read all the fine details in your current one before you proceed with the renewal process. Understanding your current mortgage will help you decide if you want to change or keep your payment schedule the same or alter other terms. For example, you can switch to bi-weekly payments from monthly. You’ll save some interest by making payments every 14 days. According to Investopedia, you can shave six to eight years off the life of a loan.
Of course, there are some other big factors that will make a difference when your mortgage renewal comes up.
Key Factors for Picking a Mortgage Term?
Picking the right mortgage term can be a challenge. Remember, the term is your commitment to the lender you have chosen, the terms of the conditions and the current mortgage rate.
A general rule is the longer the term, the higher the interest rate. However, with a longer mortgage term, you are less exposed to market fluctuations. A shorter term will give you a lower rate, and it’s a good idea if you’re thinking of selling the property soon.
Choosing a shorter term can also help you avoid a prepayment penalty if you’re thinking about switching lenders or selling in the near future.
Switching Lenders During Renewal: Possible in Ontario?
Borrowers can switch mortgage lenders in Ontario, but they’ll need to re-qualify. One of the options here is to consider a private lender that has a streamline approval process.
Keep in mind that if you’re switching lenders at the renewal time, you’re not breaking a contract so there won’t be a prepayment penalty fee. Switching mortgages before you’re up for renewal can land you a penalty– 3 months of interest payments on the outstanding amount or the interest rate differential (IRD).
Remember, when you’re switching to a new lender, the process is seen as a new home purchase. You’ll need several types of documents and to check your credit score. Here’s a list of the ones you need to put together to switch lenders.
- Documentation of property insurance.
- A property tax bill.
- Proof of income, which can include payment stubs and an employment letter.
- A copy of their mortgage renewal letter from the lender you’re currently with.
Fees in Ontario’s Mortgage Renewal: What to Know?
If you’re staying with the same lender, there won’t be any renewal fees. However, switching your mortgage and re-qualifying does have some extra costs that include:
- Legal fees can include a lawyer’s time to complete the entire process.
- A switch from your old lending institution to a new one can cost you an assignment fee of between five and $395 dollars.
- The property’s value will need to be assessed, and an appraisal fee usually runs between $150 to $500.
There’s also a mortgage discharge fee that will end your current agreement. The existing lender can charge anywhere from 0 to $400 dollars.
Keep in mind that private mortgage lenders are an excellent alternative to credit unions and big traditional banks. They serve a specific clientele and supply mortgages and renewals that take the focus off metrics like credit scores.
Looking To Have Your Mortgage Renewed in Ontario?
Mortgage Broker Store is a private mortgage lender that can help you with renewals and bad credit mortgages in Ontario. If your credit has been tarnished, we can help you get a mortgage when the traditional lending institutions have turned you away. We serve several locations in the GTA. Call 416-499-2122 or email ron@mortgagebrokerstore.com for some free advice. Our team has 34 years of experience.
