The Benefits and Drawbacks of Early Renewal
It really depends on what your current situation is and what your mortgage term and rate is to clearly define the benefits and drawbacks of an early renewal. But overall, here are some general pros and cons:
Capitalization on current rates before they rise.
· If the market expects mortgage rates to increase, it may be a good idea to consider renewing to take advantage of the low rates before they increase.
Changing current restrictive terms.
· Your current financial environment may have changed 3 years into your 5-year mortgage contract. It may make sense to break your contract to change the terms to better suit your life situation or to switch from a fixed rate to a variable, among other things.
Potential savings with new rates which outweigh the mortgage prepayment penalties.
· If an early renewal offers a new market rate which is substantially lower that your current rate it may be wise to switch. This is only an advantage if the mathematics have been performed which quantify the financial gains from the rate switch over the payments of the penalties for early renewal.
If you are within your 6-month period until mortgage term maturity, renewal is quick, convenient and there are no extra fees.
· Lenders usually streamline the process of renewing within this time period and make it as simple as a signature on the contract for renewal.
Rates may continue to drop after locked in with current rate.
· Unless stipulated in the contract, an early renewal may lock you in to a rate while current market rates are still dropping, which may lead you with a higher than market current rate.
When renewing within the 6 months to maturity of the mortgage, there are no loyalty incentives with the current banks.
· Staying with your current lender does not have the incentives that it should. Unless you are willing to negotiate with your lender, they will most likely offer you a rate which isn’t as competitive as other lenders on the market, hoping that you sign because of the convenient methods they use.
When renewing directly with the lender, you may not be offered the knowledge and professional advice you would receive with a mortgage advisor.
· Big banks and lenders will offer a renewal applicant their own rates and have a large bias towards their own products and offerings. The main advantage of renewing with a mortgage broker is gaining access to multiple lenders. A great deal of attention is spent looking at each individual’s financial needs – present and future.
It takes careful consideration of your options when planning an early renewal. Don’t rush into anything without doing your homework and definitely shop around. It is good to see what’s out there and compare and contrast each possibility. We are always here for you if you need help navigating through your options so please reach out to us. Good luck and happy hunting!