Should I renew my mortgage early? What's the deal?

Hope everyone is having a great last week of 2013. I recently met with a couple of clients that were looking into early mortgage renewals. I will be the first to admit if what you are being offered is a good deal or not. Canadians trust their banks way too much and it's good to be informed. I'd rather see a satisfied and informed consumer rather than just resigning blindly.

There's nothing wrong with being loyal to our banks but we assume that that after being years with them that they will always give us the best deal. Before I dive into the mortgage renewal world, here are a couple mortgage definitions to review...

A mortgage renewal is when your mortgage term comes to an end. Usually most mortgage terms can be 1-10 years. At the end of your term, you can decide to stay with your current lender or move to a new bank without penalty. Some banks will help cover the switching costs (only basic notary fees will be covered). A refinance only applies if you mortgage term expires and your looking to borrow more money, i.e. increase your original mortgage. Some people break their mortgage mid-term and incur a mortgage penalty. At your mortgage renewal typically you cannot borrow more money otherwise it's considered a refinance. Sounds silly but something people often forget.

Okay now down to the nitty gritty. A mortgage renewal can be a bit tricky. What you're being offered may not be the best deal. The banks try to re-sign their current clients as quickly as possible and they have a large customer service machine behind them doing this job. Some banks try to renew you 4 to 6 months in advance of the term ending. If you renew early either: (A) a small penalty is blended into the rate offered; or (B) the further out you renew before you term ends the higher the rate you receive. In other words the future out you reserve your renewal rate the higher it will be. The best rates in the mortgage market are typically 30-60 days out.

Here's a recent example. I met with a client who's term is ending in January 2014. I initially met with her in November 2013. What her bank was offering was not competitive. I managed to secure a mortgage for her where her evaluation and switching notary fees were covered by the lender. We often refer to such transactions as a mortgage switch.  The client tried to be proactive and inform herself what her options are. She had difficulty to surf through options and fine print. Together we dissected all her options and the mortgage is now complete and waiting for notary. The best tip I can give people is review the fine print of the mortgage offered. Also, the first offer might not be the best.

If anyone has any questions or would like to share a mortgage story feel free to email me.