Recently, Patrick Dumond, a mortgage broker with Multi-Prêts, appeared on Radio 104.7 Outaouais to answer questions many homeowners have when reviewing their mortgage: how to properly renew, whether to choose a fixed or variable rate, and what to do if market rates become more favorable mid-term.
Mortgage Renewal: Avoid Common Mistakes
Each year, most borrowers renew their mortgage without shopping around, simply accepting the offer from their current lender. This approach can be costly, as the initial offer is often higher than what a broker could negotiate, sometimes by 0.5% or more. On a mortgage of several hundred thousand dollars, that can mean thousands in extra interest.
Just because your bank offered the best product and rate at your last renewal doesn’t mean it’s still the case today. Starting the process months in advance gives you more options. With a mortgage broker, you can review the loan structure based on your needs: consolidating debt, adjusting the amortization period, or changing payment frequency. Waiting until the last minute often forces rushed decisions and missed opportunities.
Switching Rates Mid-Term: Is It a Good Idea?
Given the current market, many wonder if it’s worth breaking their mortgage to take advantage of a better rate. This can lead to significant savings, but you first need to evaluate the penalty amount, which varies by institution, as well as additional costs such as notary and appraisal fees, not to mention the impact on your budget.
A practical tip when interest rates are above 5%: start by asking your bank for the exact penalty amount. Then consult a mortgage broker, who can assess whether breaking the term is worthwhile, taking into account your risk tolerance, budget, and potential savings.
Fixed or Variable Rate: How to Make the Right Choice
Choosing between a fixed and variable rate is one of the most common questions at renewal time.
A fixed rate provides peace of mind with stable monthly payments for the entire term, regardless of market fluctuations. It’s a reassuring and protective choice in uncertain economic times.
A variable rate changes with the market, meaning payments can rise or fall during the term. It’s tied to your financial institution’s prime rate, which is influenced by the Bank of Canada’s policy rate. Variable rates often offer long-term advantages, potentially lowering interest costs and shortening the mortgage term. However, variable rates aren’t for everyone, you must be comfortable with possible payment fluctuations and have financial flexibility. As Patrick says, “If variable rates were always the winning choice, fixed rates wouldn’t exist anymore.”
Better Mortgage Management Is Possible
Renewing or refinancing your mortgage should never be taken lightly. A simple conversation with one of our mortgage brokers can make all the difference.