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Renewing Your Mortgage - An Opportunity to Restructure your Financing |
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John Santos-Ocampo, AMP Mortgage Broker
Direct Line: (604) 506-0397 Fax: (604) 628-3798 Toll free (Canada) : 1-800-504-5886 email: johnso@bcmortgage.ca
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Lenders count on 70% of renewers to just sign the form and mail it in -- they are not forcing you -- but they are preying on human nature to embrace convenience. However, let BC Mortgage do the work for you -- the same convenience, at a much lower cost to you and a product and terms that will suit your current situation. The fact is that it is likely another lender will give you what you want at a rate you want -- there are no legal implications to you switching
What really happens when you switch?
Most people are unaware of the legal effect of switching lenders. When you renew you are essentially starting the process again -- discharging the existing mortgage, taking out a new one, and beginning the whole payment process, albeit at a lower principal amount. As such, you should treat this as just as important a process as the first time you arranged the mortgage. Remember your situation will most likely have changed since then, and you require a different product with different terms attached to suit your situation.
In most Provinces a switch of the current or lower balance requires only a simple assignment of interest in the mortgage to be executed by all parties and registered on title. This assignment also attaches the specific terms that will have legal effect, and replaces those of the transferring institution. So even though the old mortgage is still registered on title, all those old terms and conditions registered by your previous lender will be completely replaced by those of your new lender under the assignment of interest.
Moreover, the form that you are holding in your hand from the lender who did your previous mortgage financing, has a rate that probably is not as competitive as it could be. Don't let the hassle from the first time you negotiated dictate you just signing the form and sending it back to the lender -- it will most probably cost you in the form of higher rates.
Crossing the Mortgage Renewal Minefield
When your mortgage is about to come up for renewal, you need to make sure you know all of your mortgage options. Better yet, you should have a clear idea of what mortgage strategy is best for you.Why the need for a strategy?
There�s a simple reason. When renewing your mortgage, you�re most likely in a different financial position than when you first obtained the loan. As our financial and life circumstances change, so does the mortgagethat is best for our needs and goals.
Getting married, additions to the family, receiving an inheritance � these are all major life events that can have an impact on which mortgage makes sense. In fact, most of us have questions as our mortgage nears
renewal: Should I go with a variable or fixed mortgage? What about taking some of my home�s equity and using it for renovations or investments? How can I be sure I�m getting the best rate?
Secondly, with the current financial turmoil, it makes sense to re-evaluate whether you need to shore up your cash reserves. Remember - the best time to borrow money is when you don't need it. If you are in
business and are expecting a downturn, you should consider taking equity from your home. The same is true for people who may have to face the prospect of a lower income or job loss during a down turn.
The �strategy� to avoid
At mortgage renewal time, don�t be too quick in just signing the renewal form and returning it to your current lender. If you do so, you could be paying a higher rate, and end up with a mortgage product that might notbe best suited to your interests and in some cases untold thousands in lost opportunity. That�s really no �strategy� at all!
You better shop around�
Canadian mortgage holders are becoming more savvy. More and more, homeowners are shopping around to get a better rate when their mortgage comes up for renewal.However, working on your own, you could apply to perhaps two or three financial institutions and select from their in-house mortgage offerings. A better approach is to talk to a mortgage broker � we can �shop� your
application to an extensive line-up of lenders who offer a wide range of mortgage options.
Most importantly, we can offer expert advice on a customized mortgage strategy to ensure you are taking full advantage of the many mortgage options on the market in Canada. We will also negotiate with lenders on
your behalf to make certain that you get an extremely competitive interest rate.
Thinking of switching?
For those who are thinking of switching their current mortgage to another lender to get a better interest rate, most lenders now offer "no cost or low cost switches." This can be a smart way to reduce your interestcosts.
Think of your mortgage renewal as an opportunity � to get the most from your financing. With a little advice, and a strategy in place, you�ll be confident that your mortgage is meeting your needs � now and in the
future.
Consider structuring your mortgage so that it is tax deductible
Your current lender would just love to have you sign on the dotted line to renew your mortgage rather than help you make your mortgage tax deductible. Before you do, you need to attend one of our Smith Maneouvre seminars. This will teach you a financial planning strategy that will reduce your taxes throughout the life your mortgage. Thousands of individuals in Canada are already doing this. Click here to learn more
Your mortgage options upon renewal
Here at INVIS, I can help you find the best product for your needs and negotiate you the best rate. I do the research for you, enabling you to avoid the frustration and confusion of having to do it yourself, and explain the available options. Contact me today!
- Mortgage Categories
- What terms and payment options should you choose?
- Short-term risk and variable
- Long-term
- Split-term
- Prepayment options
- Payment changes
- Payment frequency
Mortgage Categories
Fixed-rate terms:
There are a variety of terms available: 6 month, 1, 2 & 3 year (open, closed and closed - convertible) 4, 5, 6, 7, 10, 15, 25 year closed. There is even a mortgage term designed to mature prior to the US presidential elections, when rates are expected to be low.
Unfortunately, most borrowers give little thought to the mortgage term when it is one of the most important decisions that has to be made when deciding on a mortgage. Your mortgage strategy should be designed around achieving the lowest total cost through out your mortgage.
Your mortgage professional
should be able to discuss with you the optimum term
depending you certain interest rate assumptions. Ask
your mortgage broker for a report that calculates the total interest
cost over the life of the mortgage.
Variable-rate:
3, 4, 5 and 6 year (open, closed, closed-convertible and capped)
Split-term:
Combination of all possible terms (6 month through 10 years)
Self-directed RRSP: A specialty mortgage rate -- term optional -- within CMHC guidelines. Invest your own RRSP funds into all or part of your home mortgage.
What terms and payment options should you choose?
It all depends on what you want. I can assess your personal situation and needs to find the best mortgage for you at the best rate.
Short-term risk and variable
If rates are low and stable, and/ or you are prepared to take a risk, you can generally pay a lower rate with a short-term mortgage. You simply roll over your term every 6 months, or float your rate against prime, with the option of locking in to a longer term at a later date. This is not for everyone, however, as sudden upward rate movements can have a significant impact on your payments. You may want to discuss this with me personally.
Long-term
Any term 3 years or longer is considered "long term" in today's economy. Because long-term rates are usually higher than short-term rates, you may not want to choose this option .On the other hand, by locking in you will avoid exposure to rate increases. You'll have the comfort of knowing exactly what you payments will be and you'll be able to manage your budget accordingly.
Split-term
A mortgage which allows you to minimize -- or hedge -- your interest rate risk by splitting your mortgage into 5 parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today's best rates. The average rate would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years.
Prepayment Options
Many lenders allow you to make a lump sum payment -- usually 10% to 20% of the original principal balance. In addition, many mortgage products now include a "double-up and skip-a-payment" feature. This lets you "bank" extra mortgage payments for a rainy day, at which time you can "skip" them if you need to. Ask me to advise you on your options today!
Payment Changes
Most mortgages now allow the amortization to be adjusted by increasing the payment on closed terms by 10% -- 20% per year, once annually.
Payment Frequency
Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow -- weekly, bi-weekly or semi-monthly. The added benefit of the "accelerated" weekly and bi-weekly payments is that by dividing a regular monthly payment into two or four respectively, and deducting it at the new interval, an extra payment a year is made directly against principal. The surprising effect of this one extra payment a year is to reduce the amortization of the average mortgage by approximately 5 years, with cash savings at the end of the mortgage term.
"My job is done when you know your options"
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