Proper planning

Mortgage lenders make you work for the best rate. These tips help make sure you get it

Fearing your mortgage renewal? Here’s how to get the best rate

When Lisa and Jon Hicks bought their first house in Bowmanville, Ont., four years ago, their family finances looked a lot different. Lisa was working a corporate gig as a social media manager, and Jon was working full time as a sign installer.

One global pandemic later, and Lisa is selfemployed as an ADHD and autism support coach, while Jon is dealing with a disability that’s left him unable to work full time. Their family, including a six- and a seven-year-old, is now dependent on Lisa’s income.

With the couple’s mortgage up for renewal less than a year from now, Lisa’s growing fear is having to choose between making healthy lifestyle choices and paying the mortgage, or even having to move altogether.

“With interest rates the way that they are now, our mortgage payments would go up substantially,” she says. “We don’t have a lot of wiggle room. I’m feeling very nervous about how much extra we’re going to have to pay every month.”

The Hicks family is one of millions facing upcoming mortgage renegotiations, according to a recent poll by Royal LePage, which estimates that 3.4 million Canadian homeowners will renegotiate over the next 18 months, almost all at a higher interest rate.

The poll found 74 per cent of those homeowners are worried about the process and what it could mean for their livelihoods.

“There is a lot of stress at renewal time for many people,” says Denise Laframboise, a Brooklin, Ont.based mortgage broker and chief operating officer of BRX Mortgage. “Interest rates are two to three times higher than what homeowners’ rates were on their last term.” That means, she says, homeowners could face about a 40 per cent increase if no changes are made to their amortization, or the length of time to repay the loan.

Lisa and Jon originally signed a four-year term but ended up refinancing in 2020 when Lisa was leaving her corporate job and the couple had debt they wanted to pay off. They signed another four-year term and their mortgage went up by around $20 per month.

“There’s so much unpredictability. How do you know you’re making the right call?”

The last thing the Hicks want to do is move; the kids are happy with their schools and they have family nearby.

The good news for the Hicks family is that they have time to get ahead of the situation.

Victor Tran, a Toronto-based mortgage broker with True North Mortgage, says homeowners can explore early renewal options with their current lender and secure today’s rates for a longer period, especially if they’re afraid that they’re going to be renewing at a much higher rate a year from now.

“Most lenders will allow the customer to early renew into a new term and new rate as early as four months (or 120 days) prior to the maturity date without any fees.”

Tran says there’s also the “blend and extend” rate option, which is the weighted average between the customer’s current rate blended with the new market rate.

“The benefit for the client is they can hopefully secure a lower rate for a longer term,” he says. “And the benefit for the bank is that they get the customer for a longer period.”

Tran says a number of lenders offer blend and extend, and there’s no penalty with this option.

About four months before your mortgage is up for renewal, Tran says customers should expect a call from a mortgage renewal specialist with their current lender, or a renewal package by email or mail, along with their rate offers.

“Generally, when they present the rate options that far out, they’re not going to be the best,” Tran says.

As the renewal date approaches, the lenders will become a bit more aggressive with the rate offerings to keep you as a client. This is a good time to shop around. Tran points out that your current lender will offer you their posted rates up front — they’re not going to give you the best rate.

“They’re going to make you work for it and it’s really annoying, but that’s just part of the game,” Tran says. If you decide to renew with your current lender without borrowing more or extending your amortization period, you can sign on the dotted line without having to requalify.

Keep in mind that “moving to another lender may mean having to do the stress test again, and you will need to qualify at higher rates,” says Stephanie Douglas, certified financial planner and portfolio manager at Harris Douglas Asset Management. If you do decide to go with a different lender, Tran adds that it takes up to a month to complete a mortgage transfer.

If you won’t be able to afford higher monthly payments, you can look at extending your mortgage’s amortization.

If you’ve made accelerated payments in the past (read: paid more than you were expected to) and your amortization has been reduced quicker than scheduled, your lender will allow you to increase it back up to the original period.

For example, if you started off with 30 years over a five-year fixed term and you made a few lump sum payments here and there, you won’t have 25 years left when the renewal date arrives. It might now be 22 years because you’ve accelerated the payments.

Your lender will allow you to extend the amortization back up to the 25-year term, which will help drop the monthly payment a little bit. “You’re paying more interest in the long term, because you’re extending the life of the loan,” says Tran. There’s no penalty fee and no re-qualification required for this approach.

If you haven’t made prepayments or accelerated payments and your lender can’t extend your amortization, you might need to consider refinancing. In this case, you may need to requalify with your current lender. But if you’ve missed payments in the past, your current lender may not offer you a renewal and you’ll have to switch to a new lender. That means requalifying with an appraisal on the house and hiring a real estate lawyer to reregister a new mortgage title, and involves legal fees.

“That is an option that a lot of people are exploring right now. But certain customers have trouble qualifying with a new lender,” Tran says. That’s because the interest rates are a lot higher and customers have to face a higher stress test rate, and Canadians’ income hasn’t increased much in the past five years.

Tran says that there are alternative lending options with private subprime lenders (creditors who offer loans to individuals with low income or poor credit histories) that can extend the amortization beyond 30 years, but he doesn’t typically recommend them.

“The rates are a lot higher, so it’s a very short-term solution. But once you get into that trap of alternative private loans, it’s very difficult to get out,” Tran says.

If you feel like you have to resort to that option, Tran says you’re better off just listing the property. And indeed, some homeowners may be forced to sell in the short term. It really puts people between a rock and a hard place, Tran adds. That’s where expert guidance can be helpful.

If you’re dealing with financial distress and you know that you’re going to run into some issues around renewing your mortgage, Tran suggests seeking advice from a mortgage broker or adviser as soon as possible. If you don’t have job security or fear you might get laid off, it’s especially important to seek some professional advice sooner than later. Without a job, homeowners won’t be able to qualify at all.

“In our practise, we give free advice to anyone who has a mortgage question,” Laframboise says.

She’s seen a significant increase in people calling to ask what to do at renewal time. For some, qualifying for a mortgage isn’t possible so they do not have the option to change lenders, but they still need advice on what term/rate combination to take,” she says.

“The challenge of deciding how long you think it will be until interest rates come down is worth consulting with a professional on these days.”

Laframboise says she can’t tell clients when rates will come down, but she can break down the options they have, what the payments will look like with different options and what the costs will be.

Tran’s biggest piece of advice? Be proactive.

“Unfortunately, most Canadians are reactive. And when it comes to mortgage renewals, many people leave it to the last minute,” he says. “Start as early as possible and plan ahead.”

‘‘ There is a lot of stress at renewal time for many people. Interest rates are two to three times higher than what homeowners’ rates were on their last term.

DENISE LAFRAMBOISE MORTGAGE BROKER