The most common amortization for mortgage loans in Canada chosen by Property Owners is 25 years. However, the longest allowable term for a loan in Canada is 10 years, and the most common chosen term is 5 years. This means that, over the course of a typical mortgage, the loan will go through multiple renewals. Given that interest rates can vary significantly over 5 years, the renewal is a process with which most homeowners will want to familiarize themselves.
Mortgage Renewal Process
If a financial institution under regulation from the Canadian government holds your mortgage contract, the lender is required to send you a renewal statement no fewer than 21 days before your existing loan term ends. If the lender has decided not to renew your mortgage, then you must receive notification of that decision at least 21 days before the end of the term. You can expect paper or electronic notification, depending on the preferences that you established at the beginning of the loan term. Renewal statements must include the following details:
- The term of the new renewal
- The payment frequency
- The interest rate
- The APR (Annualized Percentage Rate)
- The balance due or remaining principal as of the renewal date
- Fees or charges connected to renewal
Also, the renewal statement must indicate that the offered interest rate will not take effect until your renewal date. In the same communication, you may also receive a contract for mortgage renewal.
If you decide to transfer your mortgage to another lender, then you must go through a similar process to what you went through when you first got the loan. If you got a mortgage with bad credit through a private lender and now have an improved credit score, moving your loan to a traditional lender will bring down your interest rate significantly. Whether you are moving from one traditional lender to another, from one private lender to a traditional lender, or from one private lender to another, then you will want to compare the costs that the different options bring. Typical costs include:
- Appraisal fees to confirm property value
- Closing costs with your new lender, which can include registration, discharger, transfer, or assignment fees from the current lender
- Associated administrative fees
Once your new lender has processed the due diligence part of your application, you will get a funding decision. Because this can take 30-60 days, though, you do not want to wait until the 21-day notification deadline to start this process.
Key Considerations for Renewal
If you wait until 21 days before the end of your existing loan, though, you may find yourself short of options that could end up saving you money over time. Between 90 and 120 days before the expiration date of your current mortgage, here are some questions to ask yourself:
- Do you want to keep the same payment frequency? Moving from a monthly schedule to a bi-weekly schedule splits the payment amount in half but runs every two weeks – which means 26 payments in a year. In effect, you’re making a 13th “monthly” payment each year by doing this. If you have a closed mortgage (which means a prepayment penalty) but want to accelerate your progress, this is one way to get that done.
- Do you want to adjust the payment amount? If your budget has changed since your last renewal (or since you took out the first loan on this house and you’re approaching your first renewal), and you can afford a larger monthly payment, then that will help you save on interest expense by shortening the amortization period. If you want to give yourself the luxury of paying down more principal when you have the money to do so but want to keep the financial flexibility that goes with keeping your payment amount constant, then you will want to ask about renewing with an open loan (which means no prepayment penalty). Interest rates tend to be higher on open mortgages than closed mortgages, so you’ll want to consider the impact on your budget and see which option makes more sense.
- Are you satisfied with your current lender? Look at the interest rate and the fees associated with your renewal mortgage. Do these numbers make sense for you? If so, you may want to save the hassle and fees associated with transferring your renewal mortgage to a new lender. Renewal with your current lender generally does not require an application and qualification process; unless you have developed a history of late and/or missed payments, renewal should be straightforward if you want to stay with your existing lender.
- Do you see significantly better interest rates with other lenders? If you start this process three to four months out, you have time to explore your options. If you notice interest rates with other lenders and realize you can qualify for discounted rates, both with your own lender as well as with others, let your lender know about other offers you have received. Make sure that you keep any documentation from other lenders so that you can show your current lender that you are getting more advantageous numbers elsewhere so that you can negotiate a better deal with your renewal from them.
What if your current lender decides to refuse renewal? Again, don’t wait until the 21-day deadline. If you have fallen behind a payment or two on your mortgage, or if you have had a history of paying late enough to merit some reports to the credit bureaus, then it is more than possible that your lender will deny your renewal. You know if this has happened, so again, between 90 and 120 days before the end of the term, sound your lender out to see if renewal will be a possibility for you.
If you face a denial of your mortgage renewal, then you are likely to have to look for a mortgage with bad credit. Most people who have fallen behind on their mortgage payments have also seen other credit accounts go into arrears, such as credit cards, personal loan payments, car payments, and the like. These impact your credit score and make mortgage approval difficult. You do not want to reach the end of your term with a six-figure principal due but with no approved funding ready to take over.
This is a situation that private mortgage lenders Ontario and other provinces feature can often remedy. A private mortgage comes from an individual or entity that invests in real estate by funding mortgages for borrowers who cannot qualify through traditional lenders (banks and credit unions). These loans generally run for no more than a year and involve higher interest rates than traditional lenders. The reason for the higher rates is the higher level of risk associated with the loan. However, in many cases, the private mortgage lenders Ontario and other provinces have authorized will allow you to make interest-only payments on the mortgage over the life of the term. This means that your payoff date slides off into the future (unless you accelerate payments or negotiate a favorable interest rate at the next renewal), but it also means that you keep your home and get an infusion of cash each month to deal with other debts, as the interest-only payments will often be significantly less than your former payments were.
Private lenders focus more on the value of the property than the credit score of the borrower because they understand that the credit situation is almost always problematic with these loans. However, if you are wondering, “Do private money lenders check credit?” the answer is “Yes.” Credit score is less of a factor with private lenders than it is with traditional banks and credit unions, but they still will want to see your credit history. Credit may play a role in setting the interest rate that the private lender offers you or the credit check may simply used to verify information on the application that may have been forgotten or omitted.
Times have been tough over the past few years – Canadians had to deal with the economic and psychological fallout of the COVID-19 pandemic, and just when the world seemed ready to reopen, central banks have raised interest rates aggressively to rein in inflation. However, these increased rates mean higher mortgage payments for new borrowers. If these events have damaged your credit history and made renewal of your mortgage at the end of its current term unlikely, you’re not alone – and Amansad Financial can help.
When Amansad Financial arranges a Private Mortgage, the objective is for the applicant to be able to refinance to a Bank or Non-private mortgage before the end of the term or complete the sale of the property. This is confirmed at the beginning of the process however, not everything goes as planned for some property owners. If a renewal is required, it is often provided if all payments are made as agreed, if the market is stable (or improving) and all taxes are in good order. However, one must always remember that a Renewal is never a Guarantee. All Private Mortgages should be carefully considered by all parties before entering into the agreement.
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