As I’m sure you know, many first-time homebuyers use a mortgage to finance their purchase. Most of these mortgages come with an amortization of between 20 and 30 years, but when you’re restricted to taking loans with a maximum term of 10 years what do you do? Well, when your mortgage term expires before you complete your mortgage repayments, you will need to renew that mortgage for at least one more term and that’s where mortgage renewals come in!
Essentially, mortgage renewals protect both the consumer and the lender. For the lenders, it prevents them from agreeing to a fixed interest rate for a couple of decades. Consumers, on the other hand, get an opportunity to change the terms of their loan that they are not happy with and cannot tolerate for the entire amortization period.
Renewal gives you the opportunity to reexamine your monthly mortgage payment to assess whether it is suitable for your or not. Let’s look at an example; you now earn significantly more than when you first took out your mortgage, so you’re considering making higher payments to pay down the principal quickly. Alternatively, you may be thinking about paying for your children’s education and need to reduce your payments to a more manageable level.
Renewal is an opportunity for you to get the best rates, but about two-thirds of homebuyers in Canada don’t change their mortgage terms during renewal! This is partly because of their busy schedules, and also due to the hidden costs, such as penalties for early repayment or charges for porting the mortgage to a different property in case you want to move.
