Should You Renew or Refinance Your Mortgage

When you reach the end of your mortgage term you have the option of renewing your mortgage or refinancing it. ... Read more

When you reach the end of your mortgage term you have the option of renewing your mortgage or refinancing it. Whether to renew your mortgage or refinance depends on many factors. However, as a homeowner, you must select which one will work best with your real estate goals, financial goals and current lifestyle. Renewing and refinancing both provide homeowners with certain benefits, but only one will work for them. Different types of loans can be daunting, but it is important to understand the differences between refinancing and renewing your mortgage. Understanding the specific benefits of both refinancing your mortgage and renewing it can help you decide which type is best for you.

What is Mortgage Refinancing?

Mortgage refinancing is a process that allows homeowners to replace their existing home loan with a new home loan. Mortgage refinancing allows homeowners to take advantage of lower mortgage rates that are available on the market. Refinancing can be used by those with a few years of equity built up or who want to consolidate other debts into one monthly payment. Sometimes to take advantage of lower rates you may have to break your mortgage before the term is up. Breaking a mortgage contract early may seem like an attractive offer, but it comes with high fees and prepayment penalties that can outweigh the savings in interest. The benefits of refinancing should outweigh the downside of breaking your mortgage early. If you have 20% equity in your home, refinancing is an option. By refinancing your mortgage, you can potentially save money by lowering the interest rate and paying off your home more quickly.

What Is Mortgage Renewal?

Renewing your mortgage contract is a straightforward and convenient process. Essentially, it’s renewing your mortgage plan with a new term and interest rate if the full amount hasn’t been paid off at the end of the original lending term. The renewed mortgage plan is designed to pay off the remaining balance in your loan. However, renewing your mortgage is different from refinancing your mortgage. When you have a mortgage and reach the end of your current term, you can choose to renew your mortgage. You can renew your mortgage multiple times over the life of your loan. Your mortgage term directly correlates with the loan length. When your current mortgage term nears the end, you can expect to receive a letter from your lender offering a new rate and length known as the renewal statement.

Your Renewal Statement

If your mortgage contract is with a federally regulated financial institution, such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term. Your lender must also notify you 21 days before the end of your term if they won’t renew your mortgage.

Financial institutions that are federally regulated, like banks, must provide you with a renewal statement at least 21 days before the end of your mortgage. If they won’t renew the mortgage, your lender usually must notify you at least 21 days before the end of the term. Put yourself in the best possible position before you go searching for a new mortgage. If your lender says they will not renew your loan, find out as soon as possible so you have time to prepare and consider your options.

A renewal statement should include:

  • The balance or remaining principle when the account was last renewed.

  • The interest rate is in effect on that date.

  • Any fees, such as a processing fee, that apply at renewal time.

  • Account payment frequency (monthly, quarterly, etc.). account term (5 years, 7 years).

What to Consider Before Renewing Your Mortgage

Whenever a mortgage lender sends you a letter for renewal, it’s important to review several factors before signing anything. You should consider the term of your loan, the principal and interest amounts, as well as your monthly payment frequency. This information will help you decide if you should refinance for added benefits or renew your current mortgage with the same company.

Is It Better To Renew Or Refinance My Mortgage?

 Both mortgage renewal and refinance options are meant to give you financial security. It’s all about securing the mortgage that is right for your financial future. One that will allow you to live life as you want and pay off any necessary debts.

When deciding whether or not to renew your mortgage, think about the length of time that you’ll be committing. Renewing a mortgage generally costs less than replacing it with a new loan. However, renew your mortgage when you are satisfied with the monthly payments. Explore your options before making a decision. Consider asking for an interest rate and explore options for paying off your debt sooner.

Refinancing your home might be a good option for you if it can lower monthly payments or give you cash. It’s an expensive decision, so be sure that the long-term cost will make you happy before signing anything. Refinancing your mortgage will be the better option if you are looking to borrow money for renovations, educational expenses or debt consolidation.

When is it a good idea to refinance my mortgage?

Mortgage refinance can be used to lower your interest rates, and cash-out refinancing gives access to equity. If you need to make home renovations, pay for college, consolidate debt or even make a big purchase Cash-out refinance will be the option for you.

1. Lower Interest Rates

Checking your interest rates annually can help you determine if refinancing is worth it. If you’re paying more than 2.5% on interest payments for your mortgage, or 0.75% over what’s currently available in the market, then it’s worth calculating the potential savings of refinancing a new loan. Refinancing your mortgage is a good idea if you’re finding that your current interest rates are too high. When you are deciding whether or not to refinance your mortgage, look for a rate at least 1% lower than your current mortgage rate. The lower your interest is on a refinance, the more you will save. To find out how much money you can save through a mortgage refinance, calculate your break-even point.

Mortgage refinancing allows you to consolidate debts so that they all have the same low-interest rate. This can free up money by eliminating other high-interest monthly payments.

2. Debt Consolidation

Sometimes, events occur in our lives that cause us to accumulate debt with high-interest rates. When this happens it can be difficult to eliminate the debt while making your monthly payments on time. Financial woes can pile up quickly, but tackling them head-on with debt consolidation can help ease your burden. If you find yourself in this position, it may be a good idea for you to consider consolidating your debts into one loan with a lower interest rate. Refinancing your mortgage can lower rates and help you get out of debt with consolidation. When you’ve consolidated your debts, mortgage refinancing can help you continue to benefit from favourable rates for the rest of your loan term.

3. Home Renovations

A home renovation or improvement project is a large and time-consuming financial undertaking. Depending on the size of the project, you will need to have saved up substantially to afford it. Refinancing your mortgage can provide the necessary funds to make a costly up-front investment in additional materials and supplies; giving you a beautiful new kitchen or bathroom without paying much out of pocket.

When is it a good idea to renew your mortgage?

1. The Mortgage Term Is Ending With A Remaining Balance

Your mortgage may not be paid off when your initial term expires. If you are unable to pay it off by the end of your original term, lenders may offer a “mortgage renewal” to reset its terms. Lenders offer mortgage renewal before the loan is paid off to reset the original terms. This includes modifying the length, principal, and interest rate of your mortgage in addition to inserting new monthly payments or payment intervals.

A mortgage renewal can help you save money by potentially reducing the monthly principal and interest payments, and it is a good idea to at least get an estimate before your existing loan matures. If your family has grown in size or you are struggling with mortgage repayments, consider renewing your house loan when it comes up for review if possible. Renewing your mortgage can help you to better position yourself monthly with the cost of borrowing, and give you more flexibility in terms of when it is paid off.

2. You Want To Change Your Payment Option

If you are a fortunate homeowner with the option to renew your mortgage, you may want to consider opting for an open loan instead of a closed one. At first, this can make fixed-income buyers as well as most first-time purchasers feel like they have less financial security; however, there’s more to consider in terms of interest rates and future planning. Mortgage rates are higher for an open mortgage than a closed one, but there are no early payment penalties. If you want a mortgage renewal to start fresh and move from closed to open, or if you have shorter amounts of time on your fixed income, then an open mortgage clause is the best option for you.

3. Budgeting For Fluctuating Interest Rates Can Be Tricky

Variable interest rates may allow you to save money, but they also have the potential to change monthly. You may have opted for variable interest rates to save money on interest when the market rates were low. Unfortunately, your monthly payments may be rising as a result of the increasing Prime lending rate.

When interest rates fluctuate, fixed mortgage rates can offer protection by preventing you from taking a hit if market rates go up. A mortgage renewal provides you with the opportunity to escape fluctuating interest rates and minimize the unpredictable cost of borrowing by switching to fixed rates. You may want to consider a hybrid loan that protects you against spikes in interest rates while giving you access to lower loan rates when available.

Tips For Renewing Your Mortgage

If you are considering renewing your mortgage, contact your lender at least three months before the end of your current mortgage term. Doing so not only gives you extra time to explore all of your options, but it also has advantages when you negotiate the interest rates and terms with your lender. Speak to your lender about the monthly payments, mortgage terms and interest rates.

It can be difficult to negotiate with a lender when you’re seeking a mortgage loan because they often calculate interest rates based on creditworthiness, not your monthly payments. However, most lenders may offer discounts if prompted about the interest rate up front during the initial negotiation process. Remember that negotiations are an important part of this process since mortgage terms and rates change regularly in response to market conditions.

You may be able to negotiate an interest rate discount by saying one of these phrases:

The interest rate is higher than I like, so I’ll have to think about it.”
“Unfortunately the interest rate is higher than what I’m looking for. I’ll need to think about it.”
“The interest rate is higher than I’d prefer, I’m going to wait and think about it.”
“I still have time before my mortgage term is up and the interest rate is higher than what I currently have. So, for now, I’ll wait.”

Using these phrases will make negotiations with your lender much easier. Your lender will be more likely to offer you a discount on the interest rate.

The Bottom Line

Take some time to think about what matters most to you as well as how much money you want in terms of equity that refinancing may offer compared with renewal before making your final decision. We’re happy to help answer any questions! Whether you prefer a lower monthly payment, better interest rate, or more equity in your home, there is one that will work for you.