When your mortgage is up for renewal, it's a good time to ask yourself some questions so to know if you should stick with your current provider or make the switch to another mortgage lender – one who has better rates, services or benefits. Switching at the right time can potentially save you thousands of dollars on your mortgage and help you pay it off faster. Who doesn’t want that?

What does mortgage renewal mean?

When you get a mortgage, your contract is in effect for a certain period of time, which is called a mortgage term. Most mortgage loans in Canada are renegotiated every five years, but they can be as short as six months or as long as 10 years. You have to renew your mortgage at the end of each term unless you pay the balance in full and, because most people take 20 years or more to pay off their mortgages, you'll most likely require multiple terms to repay your mortgage in full.

If your mortgage contract is with a federally regulated financial institution, such as a bank or credit union, the lender must give you a renewal statement at least 21 days before the end of your existing term. That statement must include such information as the balance or remaining principal, the interest rate for the term, payment frequency, mortgage term and any applicable charges or fees. It also must say the rate offered won’t increase until your next renewal date.

If you don’t take any action, the renewal of your mortgage term might be automatic, locking you in for the next term, which means you might not get the best rate and conditions. If your lender intends to automatically renew your mortgage, it must say so in the renewal statement.

Questions to ask yourself

• Is your current mortgage rate competitive? Even a few percentage points can make a difference.
• Are you getting good service? Is your mortgage lender available to talk to you about any questions you might have, or offers other services or products you might find useful?
• Are you receiving other benefits, such as profit sharing or perks for having your mortgage with your current institution? Credit unions such as Servus share their profits with members, who get annual benefits. For instance, on a $300,000 mortgage, you would earn about $500 per year in Profit Share Rewards® cash.
• Has anything about your budget changed, such as a salary increase, that might allow you to increase your payments to pay off your mortgage sooner?
• Do you want to change your payment frequency or make additional payments?
• Are you considering consolidating other debts that have higher interest rates and increasing the amount of your mortgage, which has lower rates?

Especially during these inflationary times when interest rates are rising, you’ll want to get the best deal, whether you have a variable rate or fixed rate mortgage. Actually, you should be thinking about whether you want to switch or stick with your current lender at least 90 days before your renewal comes up.

What does it cost to switch?

If you’re thinking of leaving your existing mortgage for another one, there are some fees that you should be aware of. There can be a mortgage discharge fee (up to $400), legal or title fees, property tax administration fees and appraisal costs (up to $500).

Some lenders will waive or cover the cost of some of these as an incentive to have you make the switch. They might also offer flexibility such as increasing monthly prepayments, making extra payments or paying your mortgage off early, which can save a lot of money in interest over the long term. So, it’s good to research all these options and to speak with your financial advisor to help you crunch the numbers.

And remember that you don’t have to switch to any products that your new lender might want you to accept if they don’t work in your interest.

What if your mortgage is not up for renewal?

If your mortgage is not up for renewal but you’re still thinking about switching providers, you will incur some extra costs. These can include a penalty that can amount to three months’ worth of interest or the difference in interest rates between your current mortgage and the amount of you lender’s current rate for the time that’s left in your mortgage, for example. If you are considering switching your mortgage before it's up for renewal, it's best to request a payout statement for your lender so you can be aware of the cost.

Depending on your situation and the interest rate or incentives at a new lender, you may be willing to pay the penalty, however it could add thousands of dollars to the amount you end up paying to switch.

What do you need to make the switch?

If you’re thinking of transferring your mortgage, first you want to research the various lenders available to you and compare their rates and payment term flexibilities. Then you’ll need to fill out a mortgage application, which will go through a credit check before being accepted. Your new lender will require a payout statement from your old lender that includes details about your mortgage, such as how much you owe and your renewal date.

Here is a list of some of the information you’ll need to bring to your new lender:

Information about your current mortgage:

• Recent mortgage statement or notification of renewal
• Whether your mortgage is insured through CMHC or Genworth
• Homeowner insurance policy
• Property tax bill or statement

Information to verify income:

• An employer letter that includes your name and salary or pay rate
• Copy of a recent paystub
• Two months of direct deposit history
• If you're self-employed, you'll need the most recent Notice of Assessment (NOA)/Income statement and two years of your T1 Generals/Tax Return Summary

Once all these documents are assessed and approved, your new lender will pay out your existing mortgage to your current lender and draft a new mortgage contract for you.

Can you not switch lenders and still get a better deal?

Often, yes. In the case of fixed-rate mortgages, many lenders will hold an interest rate for you for up to four months, which you can use to negotiate with your existing mortgage provider. Shop the market first so you know who might be offering the best deals and when you find a competitive offer that you like, get that in writing to show your current lender. You can use that to press them to match it, with the benefit of not incurring any penalties. Particularly if you have been dealing with this lender for a long time, have other products with them, or your credit rating has improved, your lender might be very eager to keep you as a customer.

The bottom line is it pays to take a bit of time and at least do some research and shop around so that you always know if you’re getting the best mortgage for you. If you’re thinking about switching your mortgage, talk to a Servus mortgage expert.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal financial advice.