Mortgages are bounded by a specific term that can range anywhere from 6 months to 10 years (and sometimes even higher, depending on the lender). That means for the duration of the term, your mortgage commitment states that your rate will be as noted. So, for example, if you take a 5-year fixed rate at 3.39%, your rate will be 3.39% for 5 years. But what happens when that term is about to expire?

Your maturity date is the date that your mortgage term ends. At the end of your mortgage term you have the option to change up your mortgage terms: you can keep the same lender, find a new lender, refinance or pay off the entire balance. A recent survey by the Canada Mortgage and Housing Corporation (CMHC) found that 89% of consumers that renewed their mortgage stayed with the same financial institution.

A recent study released by the Canadian Association of Mortgage Brokers which was conducted in January 2011 by Meritz, indicates that those who renewed or renegotiated with a Mortgage Broker reported an average rate decrease of 1.4%. This means that 89% of consumers that renewed with the same financial institution are paying a higher rate compared to the 11% who renegotiated their mortgage renewal through a Mortgage Broker.

If you are only considering switching lenders to obtain a better interest rate, it is important to work out if it is an advisable choice to make. Typically, there are fees associated with switching mortgage lenders. Some fees may include: appraisal fee, discharge statement fee, legal fees and more. However, some lenders may waive some or all of these fees for you. It’s made to seem like switching lenders can be a huge hassle, but if it comes down to saving money or renegotiating with a lender that has better products/services – it can be worth it.

Only 57% of first-time home buyers used their existing financial institution to do their mortgage, which means that home buyers are being aggressive and researching their best options when it comes to pursuing the mortgage – but less so when it comes to renewal. It is important to take a look to see what your current lender is offering you. For example, if you are offered 4.00% on a five year fixed term, it does seem like a good deal – as the posted rate is currently 5.39%. However, some other lenders are currently offering rates such as 3.39%, a drastic difference.

In terms of savings, if you compare a $200,000 mortgage with 25 year amortization at 4.00% five year fixed rate and 3.39% five year fixed rate, you save about $5,801.40 in interest over the term. In addition, you lower your monthly payment by $65 a month, which you can throw into a tax free savings account to save for a rainy day (or for higher debt repayment).

It is important to start thinking about your mortgage renewal about 4 months before the maturity date. When working with a mortgage broker, they will be able to effectively shop for the best rate for you and ensure that you are saving money in your decision to switch lenders. Remember, rates are always negotiable.

 

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