Mortgage Renewal Guide: Everything You Need to Know to Prepare
Is your mortgage coming up for renewal? It’s the perfect time to reassess your financial goals and ensure your mortgage still fits your lifestyle. In this guide, we will cover what to expect, the important questions you should be asking, and how Mainstreet Credit Union can help you make the right mortgage renewal decision with confidence, while keeping the process as seamless as possible.
- When and why do mortgage renewals happen?
- Why you shouldn’t just sign the renewal letter
- Things to consider: rate, terms, and goals
- Timing Tips
- How Mainstreet advisors help tailor your renewal
When and why do mortgage renewals happen?
A mortgage renewal happens at the end of your mortgage term, typically somewhere between 1 to 5 years. This is your chance to reassess your financial situation and choose a new term, new interest rate, or even refinance your mortgage. When you renew, you’ll continue paying off the remaining balance, often with a revised amortization schedule.
If you’ve built up equity in your home, this might also be a good time to explore options like a home equity line of credit (HELOC) to help with home renovations, consolidating debt, or funding larger expenses. At Mainstreet, we can help you understand all your options so you can tailor your mortgage renewal to your current financial needs.
Why you shouldn’t just sign the renewal letter
When your mortgage term ends, your lender will likely send you a renewal letter. While it may be tempting to sign and send it back, doing so without reviewing your options can be costly. Your interest rate or payment schedule may no longer match your needs, and you could end up locked into a term that doesn’t support your financial goals. Your monthly payments or interest rates could change, affecting your budget, or you could be locked into a term or interest rate that doesn’t work for you.
Instead, take your time and asses your financial needs and goals with a mortgage advisor before signing your mortgage renewal. Renewing your mortgage allows you to renegotiate your term or even consider switching to a different lender that offers more flexibility. Book an appointment with a Mainstreet Advisor to explore your options and get the personalized advice you need to make an informed decision.
What to consider: rate, terms, and goals
When renewing your mortgage, it’s just as important to consider the rate, terms, and your financial goals as it was when you first signed your mortgage. Any changes to these elements can affect your monthly payments, the time it takes for you to become mortgage-free, and your ability to meet other financial goals. For example, the interest rate you choose will directly impact your monthly payments. A higher interest rate means higher payments and increases the overall cost of borrowing, which could affect your monthly budget.
Take some time to reflect on your previous term. Was it the right length and the right fit for your needs? Do you need to make different adjustments moving forward? If your financial goals have shifted, such as focusing on paying down debt, planning renovations, or saving for the future, your renewed mortgage should reflect that.
Use our mortgage calculator to compare payment scenarios and view our current mortgage rates to see how a different rate or term could impact your payments.
Your options: renew, renegotiate, switch lenders
When your mortgage term is coming to an end, you have three key options available to you. You can renew, renegotiate, or switch your mortgage to a different lender. Each option is different and offers different advantages. Mainstreet can guide you through every step of the mortgage renewal process so you can fully understand the difference between each option and make the correct decision.
Renew
Renewing your mortgage means continuing to pay your original mortgage with the same term and amortization, but with an updated interest rate. This option is typically the most straightforward, especially if you’re happy with your current lender and mortgage structure. For example, if you originally had a 5-year fixed-term mortgage with a 25-year amortization, at the time of renewal, your mortgage would continue with a new 5-year fixed rate and a remaining amortization of 20 years.
Your amortization is the total number of years you chose to pay your entire mortgage balance off. With each renewal, your amortization shortens, and your updated payments reflect that.
Renegotiate
If your current mortgage no longer fits your financial needs, that’s completely normal, and it may be time to pivot. Renegotiating your mortgage lets you tailor your next term more closely to your evolving goals. You can renegotiate to a shorter or longer term, move into a fixed, variable, or open interest rate, and adjust your amortization period. You may also want to reassess your payment frequency or consider adjusting your prepayment privileges if your cash flow has changed. You can change and adjust as much as you need to fit your financial goals and needs, and pay off your mortgage sooner.
If you want to renew your mortgage early, a strategy called blending and extending is an option for you. A blended rate means your previous interest rate is blended with the current posted rates and is calculated based on the amount of time you have left on your term. You may be looking to renew your mortgage early for various reasons, such as a lower rate, which can save you money on interest paid and lower your monthly payments.
You can also explore refinancing, especially if you’ve built equity in your home. This lets you take out a larger mortgage and use the extra funds for things like debt consolidation, home renovations, or other big financial goals.
Switch lenders
Thinking about switching lenders at mortgage renewal? You’re not alone. Many people take this opportunity to explore this option to see if another lender can better match their needs. If your term is not expiring soon, it could cost you a large penalty to renew your mortgage early and switch to a different lender.
While rate is important, it’s not the only factor. It is important to look beyond the mortgage rate and consider the level of service, prepayment options, flexibility, and whether the lender aligns with your financial goals. At Mainstreet, we make switching mortgage lenders easy. Book a meeting with an Advisor to find out how.
Use our mortgage calculator to see how different rates and terms could impact your monthly payments.
Timing Tips
One of the best things you can do is start thinking ahead about your mortgage renewal, ideally, 3 to 6 months before your term ends. This gives you lots of time to explore your options and avoid feeling rushed into a decision.
Getting a head start can help you avoid potential rate increases and lock in at a lower interest rate before the market shifts. If your payments are expected to increase, it’s good to understand by how much so that you can adjust your monthly budget and avoid surprises.
Lastly, it’s important to review your financial goals before your mortgage renewal date. If your financial goals have changed, your next mortgage should reflect that; it could mean adjusting your term length, payment frequency, or mortgage type to help keep your goals on track.
How Mainstreet advisors help tailor your renewal
When it comes time to renew your mortgage, you have a wide range of options and opportunities. You could renew, refinance, or even use the equity in your home to support other goals. At Mainstreet, we take the time to get to know you and understand your unique goals to ensure you have the right mortgage solution that best fits your life.
If your renewal date is coming up, now is the perfect time to meet with a Mainstreet Advisor. We’ll make the process as seamless as possible and help you choose the mortgage that supports your financial goals. Book a meeting with an advisor to start your renewal conversation today.