Is your mortgage coming up for renewal this year?
There is a good chance that you or someone know has a mortgage coming due. 47% of Canadians, almost 1 out of every 2 households, that currently have financing in place will mature within the next 12 months with a major lender in Canada.
Here are a couple simple rules to follow if you, a friend, a family member or colleague are renewing your mortgage this year.
- DO NOT just simply sign the renewal letter that comes in the mail.
- INVESTIGATE your options.
70% of all mortgagors simply sign the renewal letter that comes in the mail. You would think that because you have been with the current lender for so long that you would receive the BEST rate out there. NEWS FLASH, that is 100% false. Remember, lenders are in business of making money for their shareholders. Your current lender has done their homework, you should do yours. They know that most of the borrowers will sign and send back the form for ease and convenience. We are lazy by nature and we possess too much trust. As finance consumers, there are scenarios I’ve seem where we are leaving 20-40 (0.20% – 0.40%) basis points on the table.
I recently read an article online that indicated the average mortgage amount in the metro Vancouver area was $438,716 for 2016. Let’s round that amount to $450,000 for ease of calculation. For every 0.25% difference the mortgage payment increases (or decreases) $13 per every $100,000 extended. If your current lender offered you a rate 0.25% higher than another lender then this scenario would yield an annual increase of $936. Are you able to invest 4-5 hours of your time to save that kind of money? Heck ya you can! That is $187.20 – $234 per hour.
Renewing with your existing lender may or may not be your only option. When 47% of you out there receive the renewal letter in the mail this year, I have 936 reasons why I would strongly advise you to reach out to me to discuss ALL your options – switching lenders to save money and/or leveraging equity for financial planning purposes.
Here is an example of how I just re-financed my home to access my equity. We were able to obtain a HELOC (Home Equity Line of Credit) mortgage product from a major Canadian charter bank.
- Current residence appraised at $1.15MM.
- Current mortgage balance, $445,000.
- Maximum loan limit, $920,000 (80% of market value: 1,150,000 x 80%).
- Opted to secure the current balance into a variable rate mortgage
- The equity of $475,000 was set-up access from a line of credit
- These clients now have access to funds for any future needs: renos, emergency, investment opportunities, post-secondary education for their children.
But while a HELOC allows for product diversification and long-term planning, it is not for everyone. It can be a bad idea if it’s just used as access to easy cash. One needs to possess high self-discipline, as the funds are extremely accessible. A HELOC is also not available to all homeowners as there must be greater than 20% equity in the home before a lender will consider it.
With 13 modifications to the lending policies since 2006 (https://hallettmortgage.ca/the-new-normal/) the time to plan is now. If I were to attempt the same re-financing maneuver today to leverage equity I would qualify for 20% less ($95,000) or $380,000. This would be one less rental property added to the portfolio. Before anymore changes happen, you should consider accessing your money today.