Rising interest rates have significantly impacted mortgage lending and homeowners’ payments. Since February 2022, variable-rate mortgage holders have faced a dramatic increase in their median payments, up by 70%, according to the Bank of Canada. Homeowners with fixed-rate mortgages are also facing uncertainty as they approach their mortgage renewal, with approximately 3.4 million Canadians set to renew by March 2025. A survey by Royal LePage in October 2023 revealed that 74% of these Canadians are concerned about the potential rise in their payments due to higher interest rates.
Among those surveyed, 24% are considering extending their mortgage’s amortization period to lower monthly payments, while 23% are exploring switching lenders for better rates. Additionally, 18% are contemplating extending their mortgage term, and 17% are thinking about downsizing to reduce their mortgage burden. Notably, 40% of respondents with variable-rate or hybrid mortgages plan to switch to fixed-rate options to stabilize their payments.
The mortgage renewal process itself involves either automatic or early renewal options. Automatic mortgage renewal is the simpler route where the mortgage rolls over with minimal changes, but this forfeits any negotiating power. Early mortgage renewal can be beneficial if interest rates are expected to rise, allowing homeowners to lock in a lower rate ahead of time.
When renewing, homeowners can review their mortgage renewal statement, which includes key details such as the principal owed, interest rate, and payment amounts. It is crucial to understand these details to make informed decisions. Renewal is different from refinancing; the latter involves breaking the current mortgage terms, potentially incurring prepayment penalties, and negotiating a new contract. Refinancing might be considered if a homeowner wishes to access additional equity or extend amortization, but it requires requalification and involves additional costs.
Before renewing, homeowners should assess their financial situation and consider whether to change the amortization period, opt for a fixed or variable rate, adjust the term length, or modify the payment frequency. They should also evaluate whether to increase monthly payments or make lump sum prepayments to reduce the principal faster.
Switching to a new lender can offer better terms but can sometimes come with costs, such as appraisal fees and administrative charges. Homeowners should weigh these costs against potential savings and ensure they meet the new lender’s criteria.
In summary, mortgage renewal presents an opportunity to reassess financial needs and make adjustments. Homeowners should start early, explore all options, negotiate where possible, and consider making extra payments to reduce debt. Proper planning and expert advice can help manage rising interest rates and ensure that the mortgage remains a good fit for their financial goals.
If you need more information regarding mortgages or if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker please visit our website at www.ymscanada.ca.
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