With the low, low rate days now (really) over, if your renewal is sneaking up, you may be cornered into a rate increase of a couple of percentage points (or more). Especially since the federal mortgage stress test is also higher, as it could block you from qualifying with another lender.
If you can't switch lenders? You'll be stuck — and at the mercy of whatever renewal rate your current lender feels like offering you.
How can higher qualifying rates cancel your ability to switch to a lower mortgage rate?
At the beginning of your term, you likely qualified for your payments using a federal stress-test rate which you probably thought was high at the time.
Recent rate hikes, however, have pushed the qualification ceiling even higher, with lenders testing your payments at current rates plus another 2.0% (so if your best 5-year fixed rate is 5.0% + 2.0% = 7.0% stress test).
To renew with your current lender, you don't need to re-qualify. But if you're out there looking for a better rate or product, even though you qualified last time and you've been paying your mortgage on time, switching lenders means you'll need to re-qualify. Today's higher qualifying rate may push your 'new' Total Debt Service (TDS) ratio over the top, cancelling the lender's ability to loan you a mortgage, regardless if they have a better rate.
Is there a way out to a better mortgage rate?
At True North Mortgage, their expert brokers have advice that may get you out of that renewal corner. Let's take a look.
Go for the stretch (of your amortization) to switch
True North's in-house lender, THINK Financial, prides itself on offering lower rates than the big banks. If you have equity built up, one of their expert brokers may be able to switch you to their lower fixed-rate product by stretching your amortization up to 25 years. That stretch can lower your debt ratios to qualify for the switch and help you save cash.
In with the old (qualifying rules of your original mortgage)
If you bought your home before Oct. 17, 2016, valid insurance may allow you to qualify using your original contract rate instead of the new stress-test rules mentioned above.
Refinance to lower your payments
If higher rates mean you can't qualify for a switch, you may be able to refinance with your current lender by extending your amortization for lower payments (lender conditions and fees may apply; THINK covers the appraisal cost for you).
Put down a lump sum at renewal
Don't have enough amortization room to lower your payments? If you have access to extra funds, plunking it onto your principal may allow flexibility for the lender to extend your mortgage length.
Go short? Term, that is
Despite most shorter-term rates being higher than the standard 5-year choice, some clients are choosing 1, 2 or 3-year terms — hoping to renew sooner into lower rates (assuming they'll come down) without having to break and pay a penalty, plus avoid paying a higher rate for a full 5 years.
How about 6 months of rate relief? There's a new product available
Aptly named 'Rate Relief,' True North has put together a limited-time, deeply-discounted, 6-month fixed-rate product. Starting with an introductory rate of 3.49% (moving soon to 3.99%), it's the lowest rate around. This innovative product is available for switches, and if it's right for you, it may be the budget break you need for a few months of lower payments.
Have a variable rate?
You may decide to switch to a fixed rate or stick with your variable rate until rates drop again. Get an education on both of these rate types by talking to one of their highly trained brokers.
Don't wait for the (renewal) paint to dry. Get great advice from a trusted expert
Knowing the rate and mortgage options available to you — and your mortgage renewal rights as a borrower — can help you find mortgage savings during a time of economic volatility.
True North's salaried brokers are all about saving you money, readily admitting it's their obsession. They can suggest ways to save on your mortgage, including debt-reduction strategies and refinancing options. You'll get an expert who excels in 5-star client service and has exclusive access to their in-house lender, THINK Financial, for your best rates and mortgages.
Be sure to talk to True North when it's time to renew. Your budget may thank you!
Fast, expert mortgage advice is right here at Canada's No. 1 Mortgage Broker.