March 30, 2012

Primed To Renew

Homeowners renewing their mortgage now have the opportunity to lock in at historically low rates and pay off the mortgage much sooner.

Many of you will be renewing your mortgage in 2012. If your renewal date happens to be around this time, you should be pleased with your timing. With historically low fixed rates available now, and hopefully for the rest of 2012, you have the option of locking in and paying these low rates for a long time. Having these lower rates and a good strategy is a great opportunity to pay off your mortgage much sooner. Seek expert advice and set up a plan to accomplish this.

Kevin Lutz, regional manager, mortgage specialists, Royal Bank of Canada

Renewing your mortgage term is, however, more than just receiving a great rate. Renewal time is an opportunity to review your current financial situation. Your goal should be to make sure you select the right mortgage options for your particular circumstances both now and well into the future. For instance, interest rates could be higher at your next maturity date. Are you prepared? What are your options to mitigate the effect of higher payments at your next maturity date? Consulting with a mortgage specialist can help you answer these questions and ultimately form a proper mortgage strategy.

Since your mortgage essentially becomes “open” on the renewal date you are now in a position to alter the type of mortgage and its terms. Therefore, you should consider the following types of questions:

  •  Has your financial situation changed since your last renewal?
  • Are you planning any home renovations or will you need additional funds?
  • Will you be moving within the next year?
  • Do you prefer fixed or variable rates, or are you unsure?
  • Will you have extra cash to pay against your mortgage?
  • Answers to these important questions will determine the next steps you take when renewing your mortgage. You will need to decide on a variety of terms and rate types – fixed, variable, both, open or closed.

Renewal time — How does it work?

About three weeks before your renewal date, you will receive a renewal letter in the mail from your financial institution. If you have questions about your renewal rate and term, or need advice, you can phone or visit your branch or consult with your mortgage specialist. Otherwise, all you need to do is review your renewal documents, select your renewal option, and sign and return the documents before your renewal date.

When renewing, make sure that you understand your immediate interest rate risk. For example, when you renew a mortgage at RBC, you are protected from an increase in interest rates for the interest type and term you selected, in the 30-day period prior to your regularly scheduled renewal date. As well, if the interest rate changes before your actual mortgage renewal date, you’ll automatically receive the lower rate for the term and type you chose.

Worried about rates increasing? Consider renewing early

Some financial institutions allow you to renew your mortgage earlier if you are worried about rates increasing by the time your renewal date arrives. If you renew early, you’ll be able to lock in at current interest rates even sooner – which could save you thousands of dollars in interest if rates rise before your actual renewal date. There are some limitations to renewing early, so contact your financial institution for details.


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