Renewing Your Mortgage
Shortly before your mortgage comes up for renewal you will receive a ‘renewal offer’ in the mail from your bank or lending institution. The renewal offer will have with a list of ‘term’ and ‘rate’ selections. These rate offerings will likely be much higher than discount rates available at that time.
The best way to approach a renewal is to call a mortgage broker at least 4 months before your mortgage renews. Many financial institutions offer rate guarantees for up to 120 days. A broker will shop the market for you and ‘lock in’ the best rate they can find. This protects you if rates go up before your renewal date. If rates go down, you will receive the lowest rate in effect over the 120 day period – so you can’t lose.
Refinancing involves breaking your existing mortgage contract and replacing it with a new one, usually to borrow additional money against the ‘equity’ in your home. You can refinance up to 80% of the property value as determined by an appraisal. People will sometimes refinance to change their existing mortgage arrangement without increasing the balance if interest rates are considerably lower and it makes economic sense to do so.
Breaking a mortgage contract usually involves paying a penalty, but you can sometimes avoid this by staying with the same lender. Most lenders will let you ‘increase and blend’ your current mortgage without paying a penalty. This involves blending the remaining balance at the contract rate with the additional amount at the current rate. This is sometimes, but not always, the cheapest way to go.