Mortgage renewals: What to do when your interest rate goes up

You've finally made it to your mortgage renewal, but wait, the interest rate is higher than what you're currently paying. 

In fact, according to data from Ratehub.ca–focused on Vancouver and Toronto–many people renewing fixed-rate mortgages, with the current state of Canada’s interest rates, could be paying up to $1,000 more a month compared to their previous rates.

This can be a shock, but don't worry, it's not the end of the world. You have options and it's important to be informed and prepared.

First of all, don't panic. It's normal for interest rates to fluctuate, especially if your mortgage term is ending. The good news is, you have choices. 

Option 1: Accept the higher interest rate 

If you're happy with your current lender and the terms of your mortgage, you can simply accept the higher interest rate. However, it's still a good idea to compare the total cost of the mortgage, including interest rate, fees, and penalties, to make sure you're getting the best deal possible.

But, it's important to keep in mind that interest rates are not the only factor to consider when choosing a mortgage lender. Other factors such as the length of the term, the type of mortgage, and the lender's fees and penalties should also be taken into consideration.

Option 2: Shop around and switch lenders for a better deal 

When facing a higher interest rate during your mortgage renewal, one option to consider is shopping around for a better deal. This means comparing different mortgage products from different lenders to find the best fit for your needs and budget. Here's what you should know about shopping around for a mortgage renewals:

1. Know your credit score: Your credit score is one of the most important factors that lenders use to determine your interest rate. Before shopping around for a mortgage renewal, it's important to know your credit score and understand what factors are affecting it. In some circumstances, a higher credit score will give you more bargaining power when negotiating with lenders. But, if your score is lower than you would like, you’ll have time to take steps to improve it, such as paying down debt, making payments on time, and correcting any errors on your credit report.
2. Do your research: You can also research mortgage products online by visiting the websites of different lenders, using mortgage comparison tools, and reading reviews from other borrowers. This is a great way to get an idea of what's available in the market and find the best mortgage products for your needs and budget.
3. Negotiate with the lender: Once you've found a mortgage product that you like, be prepared to negotiate with the lender to get the best possible deal. This could mean negotiating a lower interest rate, a lower down payment, or a lower closing cost. Be prepared to provide proof of your income and expenses, and be ready to make compromises if necessary.

In certain cases, shopping around for a mortgage–and then switching to a new lender–may equate to some discharge, registration, or transfer fees. It’s helpful to calculate what your penalties may look like in comparison to how much you could save in the long run with the new interest rates you’re being presented. 

And, when you find a mortgage product that you like, it's important to read the fine print. Be sure to understand all the terms and conditions of the mortgage, including the interest rate, prepayment penalties, and any other fees.

Option 3: Renegotiate with your current lender

One option to consider when facing a higher interest rate during your mortgage renewal is to renegotiate with your current lender. If you have a good payment history and a strong credit score, your lender may be willing to work with you to lower your interest rate. Here's what you should know about this option:

1. Know your numbers: When renegotiating with your lender, it's important to know your numbers. This means understanding your credit score, your income and expenses, and your payment history. Your lender will use this information to determine if they are willing to offer you a lower interest rate.
2. Be prepared to negotiate: Renegotiating with your lender is a negotiation process, so it's important to be prepared. Do your research, understand the terms and conditions of your mortgage, and be ready to discuss the reasons why you are seeking a lower interest rate. Be realistic about what you can afford, and be prepared to make compromises if necessary.

In conclusion, if your mortgage renewal comes with a higher interest rate, don't panic! You have options, including shopping around or renegotiating. Before making a decision, be sure to check your credit score, understand the terms and conditions of the mortgage, and compare the total cost of the mortgage, including interest rate, fees, and penalties. With a little bit of research and preparation, you can find the mortgage that best fits your needs and budget.

If you have any questions or want to inquire about what a mortgage switch could look like for you at renewal, you can get in touch with mortgage agents at Pine who are happy to help you find a mortgage that works for you.