Renewing or transferring your mortgage
Canadians' love affair with homeownership shows no sign of slowing down. Once you've taken the plunge, however, it's natural to want to forget the anxiety of house hunting, bidding wars, borrowing approvals and move-in surprises.
Yet only a few years after the homebuying honeymoon is over, we have to renew our vows when the mortgage contract expires.
"We contact the borrower four to six months in advance of renewal," says Nicolas Frechette, product manager for mortgages at Desjardins Group. "We look at their needs -- what are they planning to do over the next few years in terms of improvements or renovations to their house? If there have been changes, such as an increase in property value or the mortgage has been paid down, the borrower may qualify for a line of credit against the home or a larger mortgage at renewal."
In addition to the actual amount of the mortgage, consumers need to shop around for terms and that topic of enduring fascination: interest rates.
The better your financial portfolio and credit history, the better deal you can negotiate. And negotiation is the name of the game, say the experts.
"Most institutions have what is called a free switch to transfer your mortgage," says Rob Hafer, regional manager of Invis, a mortgage brokerage in Victoria. "Generally speaking, that includes no legal or appraisal fees."
However, if you do decide to switch lenders, the institution you're parting company with may levy a discharge fee that can be several hundred dollars.
Desjardins officials say that while one of their member credit unions may decide to charge a fee, "it is not common for Desjardins."
Frechette cautions against considering a switch before your mortgage actually expires without reading the fine print in your agreement on penalties and fees. What you might save by renegotiating with a different lender can be more than eaten up with costs to unhitch you from your existing mortgage before it comes up for renewal.
The price of procrastination
If you haven't signed a renewal by the time your mortgage expires, it's likely your lending institution will automatically issue an extension. It will typically have an open payoff term.
Borrowers should be aware, however, that any such automatic renewals will be at what's called the posted rate of interest, which is "not usually the best interest rate you can get if you do some negotiating," says Hafer. "There is what's called the posted and the discounted rate. The former is what institutions advertise, and it's typically up to a point-and-a-half higher than the discount rate."