Common Mistakes Homebuyers Make on Renewal

If your mortgage is coming up for renewal, you may be thinking, “I’ll just sign the renewal papers and get it over with.”

I completely understand. Life is busy, and when your current lender sends you a renewal offer, it can feel like the easiest option.

But before you sign, take a few minutes to review what you’re agreeing to.

A mortgage renewal is a good opportunity to step back and ask yourself - Does this mortgage still make sense for me?

Your circumstances may have changed quite a bit since you first got your mortgage.

Maybe your income is different. Maybe you've paid off some debt. Maybe you've built up a lot more equity in your home. Perhaps you're thinking about renovating, buying another property, downsizing, or even selling in the next few years.

All of those things can affect what mortgage makes sense for you.

One of the biggest mistakes I see homeowners make is assuming that the renewal offer from their current lender is their only option. This may not be the case.

Your current lender knows you already have a mortgage with them, so they may make renewing very easy. Sometimes that's exactly what you want. Other times, it makes sense to look at what else is available.

And don't look at the interest rate alone.

A mortgage with a slightly lower rate isn't necessarily the better mortgage if the terms and penalties don't work for your situation.
That's where reading the fine print becomes important.

Here's one that I think homeowners should be aware of - the bonafide sales clause.

Depending on the mortgage product and lender, this clause can restrict your ability to pay out the mortgage during the term simply because you decide you want to sell your home.

In plain English, the mortgage may require that you actually sell the property in a way that meets the lender's definition of a bona fide sale before the mortgage can be paid out under those terms.

That can be important if your plans change.

Let's say you renew your mortgage today and six months from now you decide you want to move.

You might assume that because you're selling your home, you can simply pay out the mortgage.
That's when you want to know exactly what your mortgage contract says.

Not every mortgage has the same terms, and not every lender handles these situations the same way.

That's why I always encourage homeowners to look beyond the rate and understand the mortgage they're signing.

When you're reviewing a renewal, I would consider more than just the interest rate.

Look at things such as:

• How much will it cost if you need to break the mortgage?
• Are there restrictions on paying the mortgage out early?
• Can the mortgage be transferred if you move?
• What prepayment privileges do you have?
• Are you planning to sell or refinance during the term?
• Could your financial situation change?
• Does the mortgage give you the flexibility you might need?

These things may not seem important when you're sitting at home signing a renewal.

They can become very important if your plans change.

One of the questions I like to ask is:

You don't have to know exactly what the future holds. None of us do.

But if there is a possibility that you will move, retire, renovate, purchase another property, or make a major financial change, it's worth considering that before you lock yourself into a mortgage.

The cheapest rate today isn't always the best overall option.

Sometimes flexibility has value.

If your mortgage is coming up for renewal, don't wait until the renewal date is right around the corner before looking at your options.

Give yourself some time.

That way, you can compare your current lender's offer, look at other possibilities, and make a decision based on what's actually best for you — rather than simply accepting the first piece of paper that arrives in the mail.

And if you're not sure what all those mortgage terms mean, that's okay.

That's what I'm here for.

If you're a homeowner in Red Deer or Central Alberta, I'd be happy to sit down with you and go through your options.

There is no obligation to change lenders. Sometimes the best option really is to stay where you are.

But I'd rather see you make that decision because you've compared your options, not because renewing was simply the easiest thing to do.

Your mortgage is too important to put on autopilot.