Here are the top five mistakes to avoid when renewing your mortgage, along with practical advice on how to secure the best possible deal.

1. Assuming Your Current Lender Offers the Best Deal

Many homeowners assume that their current lender will automatically offer them the best rate, given their payment history and existing relationship. However, this assumption can be costly. Banks and lenders often rely on borrower inertia, knowing that many customers won’t shop around or negotiate rates. As a result, you might end up with a higher rate than what’s available in the market.

Solution:

• Shop Around: Compare rates from major banks, credit unions, and alternative lenders. Websites like Ratehub.ca provide useful rate comparison tools.
• Negotiate with Your Current Lender: Ask them to match or beat a competitor’s rate. Lenders prefer to retain customers and may offer better terms if you threaten to switch.
• Consider a Mortgage Broker: Brokers can access exclusive rates and negotiate on your behalf, often securing better deals than what you might find on your own.

2. Focusing Only on Interest Rates and Ignoring the Fine Print

While a lower interest rate is attractive, it’s crucial to consider the overall terms of the mortgage. A mortgage with a great rate but restrictive terms can end up costing more in the long run. Some lenders charge hefty fines for early payments or lump-sum payments, which could negate the savings from a lower rate. If you move before your term ends, a non-portable mortgage might require breaking the mortgage and paying penalties. Some lenders limit how much extra you can pay annually or how often you can increase payments, making it harder to pay off your mortgage quickly.

Solution:

• Read the Fine Print: Carefully review all terms and conditions before signing.
• Ask About Flexibility: Ensure you understand any restrictions on prepayments and portability.

3. Waiting Until the Last Minute to Renew

Waiting too long to review your options can lead to auto-renewal at a less favorable rate. Lenders often send renewal notices close to the end of your term, but it’s essential to start exploring options well in advance.

Solution:

• Start Early: Begin reviewing your options four to six months before your term expires. This allows time to compare rates, assess your financial situation, and consider switching lenders if necessary.
• Secure a Rate Hold: Many lenders offer rate holds for up to 120 days, allowing you to lock in a competitive rate while still shopping around.

4. Not Adjusting Your Mortgage Features

Renewal is an opportunity to reassess your mortgage needs. Many homeowners default to the same terms without considering changes that could offer greater flexibility or savings. If your income has increased, switching to accelerated bi-weekly payments can help pay off your mortgage faster. 

Conversely, if your budget is tighter, opting for lower monthly payments might be necessary. Some lenders allow lump-sum payments of up to 20% of the principal annually without penalties, helping you pay off your mortgage faster. A shorter period reduces total interest paid, while a longer period lowers monthly payments. Adjust this based on your financial goals.

Solution:

• Review Your Financial Goals: Consider how your financial situation has changed and whether your current mortgage meets your needs.
• Consult a Mortgage Professional: Discuss your options with a broker or financial advisor to determine the best strategy for your situation.

5. Not Considering Switching Lenders

Many homeowners assume that switching lenders involves high fees and complexity. However, this isn’t always the case, and switching can sometimes save you money in the long run. While some fees apply when switching, many are waived by the new lender as an incentive to acquire your business. If you switch lenders and keep the same amortization period and loan amount, you typically won’t need to requalify under the stress test rules.

Solution:

• Explore Options: Research potential savings by switching lenders. Cashin Mortgages can provide valuable insights and assistance in navigating the mortgage market.
• Consult a Mortgage Broker: Brokers can help you navigate the process and find the best deal available.