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Mortgage renewal in 2024? Experts weigh in on how to get the best rate

Your investments have been growing quite well
Three-fifths of Canadians concerned about their upcoming mortgage renewal, but experts say there are different ways to mitigate the payment hikes. (Getty Images) (AlexanderFord via Getty Images)

Two years of aggressive interest rate hikes have left three-fifths of Canadians concerned about their upcoming mortgage renewal, according to a recent Leger survey commissioned by Ratesdotca and BNN Bloomberg.

By the end of the year, the Bank of Canada says 65 per cent of Canadians will have faced an increase in their mortgage payments. But experts say there are different ways to mitigate the impact of the payment hikes.

Breaking down the mortgage renewal process

If your mortgage is with a federally regulated financial institution, like a bank, they are legally required to present you with a renewal statement at least 21 days before your maturity date, which is the last day of your existing mortgage term.

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However, most lenders will reach out between four and six months in advance, says Victor Tran, mortgage and real estate expert at Ratesdotca and Toronto-based mortgage broker.

“Generally, the renewal package will go out by mail and you should get an email and a call as well,” Tran said in an interview with Yahoo Finance Canada.

As part of this communication, the lender will offer you a new interest rate. Whereas someone might have been able to secure a mortgage at a sub-3 per cent rate in 2019, the average interest rate for a five-year fixed mortgage right now is 5.29 per cent, according to data provided by Tran and his brokerage, True North Mortgage.

As a result, most Canadians can expect their payments to increase by 20 to 30 per cent, says Eitan Pinsky, mortgage expert and owner of Pinsky Mortgages in Vancouver. A Bank of Canada analysis conducted last year found that those renewing in 2024 with a variable-rate mortgage with fixed payments would face an average increase of 24.5 per cent, while those with a fixed-rate mortgage with a term of less than five years would face an increase of 23.1 per cent.

If you’re renewing with your existing lender, you won’t have to re-qualify and prove you can still afford your mortgage with these higher rates, Pinsky adds. However, if you want to switch lenders, you will need to go through that process.

“If you cannot qualify for another mortgage, you’re really beholden to the lender you currently have,” Pinsky said in an interview with Yahoo Finance Canada.

Be ready to negotiate and shop around

The first offer from your lender likely won’t be their best one, Pinsky and Tran stress. They suggest you always try to negotiate.

They’re hoping that clients will just sign the renewal form … and trust the bank that they’ve given them the best rate,” Pinsky said. “As soon as the client says, ‘Hey, this isn’t the best rate, please sharpen your pencil,’ they’ll come back and sharpen their pencil.”

But they probably won’t sharpen it well enough, he adds, unless “they know they’re in competition to lose the mortgage.” That’s why Pinsky and Tran say it’s important to shop around. This might involve a quick web search, but the “special” rates that banks promote online are generally 0.2 per cent higher than their actual rates, Pinsky notes.

Instead, Tran suggests speaking with a mortgage broker or a mortgage specialist at a new lender. If they offer you a better rate, you can switch to the new lender, who should cover any transfer fees, Tran says. Or you can use their offer as leverage with your existing lender.

“Tell your lender, ‘If you don’t match this rate, I’m going somewhere else,’” Pinsky said.

Do your research

Previously, lenders might have accepted an email as proof of an offer, Tran says. Nowadays, he finds that most are asking to see an actual mortgage approval.

“They’re going to make you work for it,” Tran said.

But it should be worthwhile.

Over the last year, Pinsky says he’s never seen a bigger discrepancy in rates between lenders, ranging from 0.5 to 0.75 per cent. And the whole process of speaking to a mortgage professional and exchanging documents shouldn’t take more than a couple of hours, Tran adds.

“It’s a lot less time than people think,” he said. “And it could add up to thousands of dollars of interest saved throughout the term of the mortgage.”

More tips for your mortgage renewal

  • Be proactive: Tran advises Canadians to begin rate shopping no later than one month before maturity, since it can take three to four weeks to complete a mortgage transfer. Ideally, they should start around the four-month mark, he says.

  • Don’t commit too early: While early research is crucial, Tran and Pinsky agree it might be wise to hold off on a commitment given forecasts of rate cuts in 2024. Additionally, Tran says lenders often start to “play ball” as the renewal date approaches.

  • Consider a shorter term: More Canadians are opting for three-year fixed terms, according to Tran and Pinsky. The interest rates on a three-year fixed term are "a lot lower" than one and two-year terms, but “not much higher” than four or five years, Tran notes. And many Canadians don’t want to be locked in for too long with potential rate cuts coming, he adds.

  • A variable rate might be viable: Tran and Pinsky say the anticipation of rate cuts has also made variable-rate mortgages appealing to some. If you’re willing to pay more now, you could end up in a better position if market predictions prove correct, they agree.

  • Extend your amortization: If you’ve paid down your mortgage balance quicker than scheduled with accelerated or lump-sum payments, Tran says most lenders will let you extend your amortization back to the original length, minus the elapsed time. This will lower your monthly payments, but result in more interest paid over the life of the loan.

Farhan Devji is a freelance journalist and published author based in Vancouver. You can follow him on Twitter @farhandevji.