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How to enjoy lower mortgage rates before the end of your term

15 September 2020 by National Bank
Tips for End of Term Mortgage Renewal

With only a few months left before the end of your mortgage term, are you looking to benefit from current, more attractive interest rates? Please note that you can renew your mortgage up to six months before the deadline without incurring any penalty. This is called an early renewal. 

“This could be a particularly beneficial option if interest rates have gone down since the beginning of the year,” explains Jonathan Haziza, Senior Manager, Retail Financing Solutions at National Bank. “With an early renewal, you’ll enjoy the new mortgage rate as of the first payment after you’ve signed the renewal contract. Therefore, if your new rate is lower than your old rate, your mortgage payments will go down, as will the cost of your loan until the end of your mortgage.”

“It pays to be familiar with early renewal. A good first step to take is to call one of our mortgage retention experts; they will be able to evaluate your situation and discuss the advantages with you. Beyond the rates, don’t forget to choose the best financing solution for your renewal,” Haziza adds.

A few elements to consider before proceeding

“Renegotiating your mortgage is an ideal time to review your current needs, your financial objectives, as well as your long-term goals. Let’s imagine the following renewal calculation: you buy property with a 25-year amortization period and a 5-year term. This means that you’ll only have four opportunities to re-evaluate your needs with an advisor – each time your mortgage is up for renewal. To help you in this process, it’s a good idea to seek out a mortgage renewal expert,” Haziza recommends.

“As you go through different stages of your life, it’s especially important to use the time between terms to get an understanding of what avenues are open to you. Take advantage of these key moments to evaluate your options before renegotiating your mortgage.”

You can start by asking yourself certain questions, such as:

  • Do you plan on moving soon and selling your current property?
  • Do you think you’ll undergo renovations that will require financing?
  • Are you thinking of buying a secondary residence?
  • Have your financial objectives changed?
  • How has your financial situation changed over the last few years?
  • Would you like to pay off your mortgage faster?

“The goal is to see whether the strategy you adopted at the beginning is still relevant, or if you’re better off redefining it and developing a reimbursement strategy based on that,” the expert points out. “For example, if you’re in a position where you can up your current monthly payment, you could decide to opt for an accelerated bimonthly payment. As there are 52 weeks in a year, you could make 26 $500 payments instead of 12 $1,000 payments, which comes out to one extra monthly payment every year. This method reduces your amortization period and, in turn, lowers the amount that you pay in interest.”

“Basically, your mortgage renewal is a key moment for your personal finances. Beyond renegotiating a better real-estate rate, you first have to define your needs. That way, you’ll know that the new mortgage solution you chose when it was time to renew meets your current and future needs and preferences.”

Choose a solution that suits your needs

By speaking with an advisor, you’ll get the opportunity to discover the different options beyond the most well-known solutions, like fixed-rate or variable-rate mortgage loans over five years. Mortgage loans can be modified for each client, depending on their needs. For example, you could have a fixed rate for half of your loan and a variable rate for the other half so that you can enjoy the benefits of both types of products.

Regardless of the state of the economy, choosing a rate – whether fixed or variable – should always be based on your risk profile. “Variable rates follow prime rates’ fluctuations pretty closely,” Haziza confirms. “The economic context will definitely have an impact on your final choice. Variable rates can be very interesting if your financial situation is such that you can absorb a certain amount of variability.”

Consider a home equity line of credit

Renewing your mortgage is also a good time to consider whether you need a home equity line of credit. “You can access the repaid principal on your property to take out a line of credit and finance other projects, like renovations or the purchase of a secondary residence,” states Haziza. “This should be part of your conversation with an advisor.”

Usually, a home equity line of credit works according to the user pay principle: your financial institution makes an amount available to you with an interest rate that is comparable to your mortgage. You use it when you need it, and only then do you start paying any interest.

“You can also see the line of credit as a security blanket which provides access to cash flow as required,” the expert adds.

Think about your mortgage deadline

You may incur penalty fees if you renew earlier than the six-month period before the end of your mortgage term. “In this case, it’s important to compare these fees to how much you would save in interest if you renewed with a new mortgage rate. In general, the further away the mortgage deadline, the higher the fees,” Haziza explains.

In any case, feel free to contact a National Bank mortgage renewal expert by phone to discuss the options that are available to you. They will be able to provide you with the guidance you need and help you consider the right questions to make the best choice and achieve your goals. 

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