The mortgage renewal rate you pick can make a big difference in how much your mortgage costs.
Stay sharp! Declining interest rates can net you a bargain when you renew your mortgage.
Current Mortgage Renewal Rates in Ontario
If you were asked ‘what are mortgage rates in Canada right now?’, would your answer be ‘too high for comfort’?
Job growth and surging inflation are to blame for the current mortgage interest rate in Ontario. Ratehub.ca calculated the best five-year fixed mortgage renewal rate in late 2022 at 4.89%. New mortgages were 5.24% to 5.49% at three of Canada’s biggest banks. That’s a stretch for homeowners used to 2.79%.
Canadian financial group Desjardins predicts five-year fixed rates could rise to 6.3% by April 2023 and as high as 7% by year’s end.
Reducing Your Anxiety When You Renew Your Mortgage
Being laid off or looking for work when you’re about to renew your mortgage could flatten any homeowner’s dreams. You may be glad just to sign off quickly on the first mortgage renewal rate you’re offered.
Now what do you do? Switching lenders when you renew your mortgage is easy in good financial times. But the truth is you could be turned down even then if:
- You pay child support or make spousal support payments. Family support is treated as debt.
- You own a small business and use tax planning to reduce your income tax bill. Low taxes equal lower mortgage eligibility. Paying more tax now makes it appear you make more money. That can translate into more borrowing ability.
- You’ve gone bankrupt. It takes about seven years to rebuild a credit rating. Ontario bankruptcy laws and applying for a mortgage.
- You cosigned a loan or mortgage. Mortgage lenders take co-signed debts as your own. Since you could be required to make payments if the purchaser defaults, the amount is added to your mortgage eligibility balance sheet.
Figuring Out Your Non-Taxable Income
Before you plan your next move, add up your non-taxable income. That’s one-time only or infrequent income that mortgage lenders use when calculating your income to renew your mortgage. When to get a portable mortgage.
Lenders can’t rely on non-taxable income to make monthly mortgage payments, nor can you.
Unless you consistently receive income from a non-taxable source, plan to exclude these from your qualifying income:
- lottery winnings, except “pay for life” or interest you invest
- gifts or inheritances
- war vet disability or death benefits
- GST / HST credits
- Canada child benefits
- family allowances
- Quebec handicapped children supplement
- criminal act or motor vehicle accident compensation
- life insurance
- strike pay
- and although some lenders will accept it, usually your TFSA (tax-free savings account).
Strategies You Can Use to Renew Your Mortgage
Just like starting a new job affects mortgage eligibility, so can being on CERB (Canadian Emergency Response Benefit). You’re welcome to apply for a mortgage with a new lender, but don’t expect to be approved until you go back to work. The mortgage stress test alone could tank your application. Renewing with your existing lender means you won’t need to requalify or take a stress test. Just pick your desired term and sign the renewal. Your mortgage lender knows you’re reliable. Besides, they have your home as equity.
Accept an Early Mortgage Renewal Letter
That letter from your lender offering to renew your mortgage early (up to 120 days without a penalty) may look good. But is it the best deal you can really get? Jumping too quickly may mean you miss out on lowering your mortgage interest rate.
Switching lenders could save you thousands in interest by reducing your monthly payments. Thinking about how you could spend that extra money every month can be tempting. Are second mortgages worth the cost?
Before you bite, talk to your existing lender. Your mortgage lender knows you’re reliable, and besides, they have your home as equity. Renewing with a trusted lender means you won’t necessarily have to requalify or take a stress test. Just pick your desired term and sign the renewal.
From discounted interest rates to matching competitors’ offers, lenders are open to negotiating while renewing your mortgage. Here’s how to get better mortgage renewal rates.
Lock in a Fixed Rate Mortgage
Now that you’re at a lender, a dizzying array of options await you. Fixed mortgage rates offer steady PI (principal and interest) payments for up to 10 years so you can plan ahead. On the con side, if interest rates go down you could pay more than borrowers with shorter terms.
One thing is for sure, fixed rate mortgages have to be renewed when the term is up. Penalties for breaking a mortgage early increase the longer the term is. Final analysis: pick this option if your house is your forever home (for now), then look for the longest term with the lowest interest.
That probably won’t be the 10-year rate, but for long-term stability, it can’t be beat. Who qualifies for a private mortgage.
Use Variable Rate Mortgages for Long-term Wins
Variable rate mortgages (VRM) win for lowest loan amortization costs. You save big by getting the lowest daily interest rates available and paying off your mortgage faster. VRMs are a bit of a roller coaster ride, so be prepared. You can steady your nerves by choosing set monthly payments. When interest rates go down, more of your payment goes to principal. When they go up, you pay more on interest costs. Why you need to sidestep the trigger rate on a variable rate mortgage.
- Try Adjustable Rate Mortgages for Short-term Gain
Think prime rates will drop or planning to flip? Go for an adjustable rate mortgage (ARM). Adjustable interest rates change every time the prime rate does. You may even qualify for more mortgage because your monthly payments are so low.
ARMS are tricky. Just as the name suggests, the interest rate is adjusted or reset throughout the life of your loan. Once you hit the ARM cap, any interest left unpaid by the end of month is added to your principal. Come time to renew your mortgage, your principal may be greater than when you bought your home. If interest rates go sky high, you could pay more interest than with a fixed rate mortgage.
It’s a gamble. Our advice: keep your mortgage payments on an even keel by setting a limit (or cap) on how much you can afford to pay each month. How RRSP mortgages work.
Why You Need a Real Estate Lawyer
Axess Law handles every kind of mortgage refinance document, on time and for a lot less than you might pay traditional lawyer services. Our licenced Axess Law real estate lawyer liaises with your bank, credit union, trust company, or private lender to obtain mortgage documents you need to sign when you opt to change lenders. What mortgage lawyers do for you.
We conclude your existing loan for a modest mortgage discharge fee. Axess Law charges only low flat fee rates to refinance your mortgage. And, you can video conference with an Axess Law virtual real estate lawyer anywhere in Ontario.
Our secure video call software lets you discuss your real estate transaction confidentially from the comfort of your home or office. We witness mortgage discharge documents online, and send you a copy for your records. Using a virtual lawyer in Ontario is quick, easy, and affordable.
Affordable Legal Services, Anywhere in Ontario
Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Use a virtual real estate lawyer.
Legal Advice for Mortgage Renewals in Ontario
Made a choice? Sign mortgage renewal documents online by video conference call. Axess Law has a real estate lawyer available 7 days a week, day or evening, at your convenience. A licensed real estate lawyer can assist you online anywhere in Ontario. In person meetings are available at any of our conveniently located Greater Toronto Area or Ottawa law offices. Dial toll free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form to make an appointment.
Click here to learn more about Axess Law’s real estate law services.