Though mortgages can last for decades, you will periodically need to renew your mortgage when your term ends. Renewing is a regular part of having a mortgage, and it allows you and your lender to periodically update your mortgage to fit current interest rates and financial goals.
Though renewing is a standard part of a mortgage process, if it is your first time or you are looking to get the best deal, you may feel some pressure to ensure everything goes well and get the best rates. Especially for those who struggle with deadlines, a mortgage renewal may seem intimidating as the clock is ticking to make a deal with a lender.
Luckily, not only is a mortgage renewal fairly easy to process if you want it to be, but many lenders will offer a generous grace period in which you can start an early mortgage renewal. By renewing early, you get time to shop around to new lenders, lock in a lower rate, and avoid the stress of impending deadlines.
If you've got a mortgage renewal coming up, read on to find out all you need to know about early renewals and how to get the best rate for your mortgage.
How early can I renew my mortgage?
When you sign on for your mortgage, you will agree to a certain term length with your lender. This will determine, in general, how soon you can renew your mortgage. For example, if you take a 5-year term, you don't even need to think about renewing that many years. However, once you reach the end of your term, you must consider your options for renewing, and doing so early can be a huge advantage.
Despite the term length being a certain number of years, you may not have to wait that long to renew your mortgage. Lenders understand that deciding how you want to renew is important, so they will often let lenders start their renewal early to have some extra time to get everything worked out.
Ending or modifying your mortgage early would incur a fee, but when it comes to mortgage renewals, you can often start completing the process a few months before your term ends. The amount of time offered to renew early will vary between lenders, but generally, you can expect to have about 90 to 180 days to renew early. In some cases, your lender will not offer you an option to renew early at all.
How will I know it is time to renew?
When you first sign your mortgage, you will decide on a term length that will determine how long you have until you need to renew. At this time, the lender may also tell you your options for early renewal. Luckily if you have forgotten over the interim years, your lender will usually reach out at least 21 days before your renewal date to inform you that the time has come.
However, if you intend to shop around to other lenders, 21 days may not be enough time. Do your best to remember your renewal timeline so you can get as much time as possible to complete your renewal. Consider making a note on your calendar or setting a digital reminder for when the time comes
Is there a downside to renewing early?
Just because you can renew early, does that mean you should? Deciding to renew your mortgage early does not come without some critical considerations.
For example, your lender may offer you an early renewal with predetermined terms making it easy for you to renew without a hassle. They do this for convenience but also so that they can discourage you from looking elsewhere.
You must remember that your mortgage renewal process is a negotiation, so the first offer your lender gives you will rarely be the best available. While renewing right away may be tempting, putting in a bit more work to negotiate with your lender or compare other lenders' rates may net you a lower interest rate and save you money.
When interest rates are falling, renewing as late as possible is in your best interest to get a lower rate. On the other hand, an environment where rates are on their way up, such as we are currently seeing, may be one of the best times to renew early. Interest rates can change significantly in the three or four months you have to renew. Locking in a rate as early as possible can save you a lot of money down the line.
What happens if you miss a renewal date?
On the other side, you may find yourself in a case where you have missed your mortgage renewal date. This may be due to a mortgage renewal denial or simply negligence on your part.
In many cases, your lender will automatically renew your mortgage at a specific date if you take no action. While this may sound easy, you will rarely get the best terms in this arrangement and are setting yourself up to pay more than you need to.
If your mortgage is not auto-renewed and you miss your renewal date, you should probably contact your lender as soon as possible to see if you can remedy the issue. Otherwise, you will be unable to continue your mortgage and will need to pay off your mortgage in full, sell your home or refinance.
Things to keep in mind when renewing your mortgage
When it comes time to renew your mortgage, you have an excellent opportunity to re-evaluate your needs and adjust your mortgage accordingly. This may include reducing your monthly mortgage payments or working to repay your mortgage sooner. If you want to make the most of your renewal, here are some things to keep in mind.
First, you should take account of your financial state so you know what you can afford for your home. Has your income gone up since your last term started? You may want to take on higher payments. On the other hand, you may want to look for a lower rate to save more on your monthly payments to help cover other costs. You should also consider factors that may make it difficult to get a favourable renewal, such as a damaged credit score, and keep these in mind when shopping around.
Next, you should try to begin looking around as early as possible to give yourself plenty of time to find the best option for you. Ask your current lender about what rates they can offer, and compare these with other lenders. Lenders are eager for your business and will happily share their rates with you. You should seek out as many lenders as possible for the best possible options.
If you are looking at your renewal as an opportunity to improve your mortgage terms, it is very rarely in your interest to take the first option your current lender offers or to take the automatic renewal. Even if you don't plan to switch lenders, you should always try to negotiate for a lower rate with your current lender.
If you are in a rising rate environment, you can also ask a lender for a rate hold. If you suspect rates will increase soon, you can lock in a good rate before they increase. Usually, a rate hold will only last for a few months, so be sure to complete your renewal in time to take advantage of this option.
You may also want to change more than just your interest rate at the end of your term. In this case, a refinance may be a good option for you. Refinances can incur a fee if they are used too early, but when your mortgage comes up for renewal, you may be able to refinance with little or no financial penalty.
With a refinance, you essentially pay off your existing mortgage with a new one. This can allow you to modify almost all the terms of your mortgage and take out some extra money from your equity.
Finally, to make the most of your new mortgage term, you should consider working with a mortgage broker. Not only do they have access to a wide range of lenders, but their relationships with these lenders can help them to negotiate an even better rate on your behalf. In many cases, you will not even need to pay for their service as lenders will cover the costs with a finders fee once you sign your mortgage.