With more than a million Canadian borrowers set to renew their mortgages next year, experts say it’s never too early to prepare for renewal shock and explore your options.
When interest rates were near rock-bottom levels in 2021, the average rate for a fixed mortgage for terms between three and five years was 2.05 per cent, according to data from NerdWallet. In 2023, the same term rate more than doubled to 5.41 per cent.
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Even after a string of interest rate cuts by the Bank of Canada, Canadian homeowners should brace themselves for a higher renewal rate. As of Dec. 5., rate comparison site Ratehub.ca finds five-year fixed mortgage rates — the most popular type of mortgage in Canada — range from 4.14 per cent to 6.79 per cent.
Ian Calvert, vice-president and principal at HighView Financial Group in Toronto, says it’s never too early to start exploring your options. Selecting a new term involves deciding on the interest type and how long the new interest rate will be in effect.
In general, Calvert recommends giving yourself one to three months to shop around for the best rates. A mortgage broker or using mortgage comparison sites like Ratehub.ca or Rates.ca can help in your search.
Dylan Wilson, a certified financial planner with Halifax-based Verecan Capital Management recommends using an independent mortgage broker who has access to multiple lenders and can leverage your existing offer to get a lower rate.
“Certain lenders are more aggressive when it comes to having attractive rates in terms than others at certain times,” says Wilson. “It all depends on how the balance sheet for that specific lender looks at that moment in time.”
But do your due diligence before working with a mortgage broker, making sure to ask questions about their commission structure and incentives.
“Certain lenders offer incentives, such as credits toward trips to sun destinations, gift cards or bonus commissions,” says Wilson, “depending on volume or what time of year the deals are placed.”
If you decide to work with a new lender, you will have to go through the application process for a new mortgage, including requalification.
The lead-up to a mortgage renewal is also a good time to see where you can hack away at your household debt jungle.
If you’re not sure where to start, Calvert says look to eliminate high-interest debt first, such as credit cards and private loans. “Completing a cash flow plan for the optimal mortgage payment range is also recommended,” says Calvert. “Ideally, your mortgage payments should be at a level that still allows you to save for retirement and have an emergency fund.”
“If you know your mortgage payment is going to rise by $500 a month, see if you can save that $500 a month today and smooth out the impact over time,” says Wilson, adding that making adjustments to your discretionary spending can be challenging.
“Putting in the work when the stakes aren’t as high can be beneficial in the long run.”
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