In Canada, homeowners can refinance mortgage terms and renew them, but which one is the better option?
One of the overlooked benefits of buying a home in Canada is being able to change mortgage terms every few years. However, many homeowners have a hard time choosing between mortgage renewal and refinancing. This can prevent them from getting better deals and feeling more satisfied with their loans.
Figuring out which option is better for your situation will ensure that you save money and have an enjoyable experience with your lender. All it takes is learning about what it means to renew mortgage terms vs refinancing them.
Read on to learn the basics about refinancing and renewing a mortgage!
What Is Mortgage Refinancing?
Mortgage refinancing is one of the most common strategies done by those that are struggling to pay their current mortgage off. It involves getting a new mortgage to replace the old one, with the new one having different terms. In most cases, the new mortgages have longer repayment periods and smaller monthly payments.
One of the main reasons why people refinance is a mortgage is to take advantage of lower interest rates. If they’re able to secure a new loan with lower rates, they can immediately pay the old one off and avoid higher interest payments.
People also refinance mortgages when they’re unable to keep up with payments but don’t want to lose their homes. For example, if they have a $200,000 mortgage with a 20-year repayment period, they can switch to a 25-year loan. This will make their monthly payments lower, though they may pay more in interest in the long run.
Benefits of Refinancing a Mortgage
When choosing whether to refinance or renew our mortgage, we should consider the benefits that refinancing can offer. A mortgage refinance gives us more control over our money and allows us to have more predictable payments. Aside from that,
Here are the main benefits of refinancing a mortgage:
Secure Lower Interest Rate
If we have a mortgage with a higher interest rate, we can refinance it so that we have a lower interest rate whenever a better deal is available. People often get access to more favourable mortgage loans when they improve their credit scores. Depending on our lender, they may offer better terms after a few years.
Shorten the Loan Term
Aside from lowering the interest rate, we can refinance our mortgage to shorten the loan term. While many people think that having a shorter term will require high monthly payments, it depends on the exact interest rate.
For example, a 15-year mortgage with a 10% interest rate can be changed to a 10-year mortgage with a 5% interest rate. We’ll end up paying slightly more each month, but we’ll have the house paid off much quicker while saving a ton of money on interest.
What Is Mortgage Renewal?
Unlike mortgage refinancing, which involves getting a new loan, a mortgage renewal revolves around extending our current loan. This process is done often throughout the borrowing process and it often comes with lower interest rates with each renewal.
When a mortgage is nearing the end of a term, a lender sends the borrower a renewal slip with new terms. These new terms will consist of a different interest rate and a repayment period. However, a borrower can choose to go with a new lender if they’d like to seek better terms. They can also pay the mortgage off to avoid having to extend the loan.
Benefits of Renewing Your Mortgage
Renewing a mortgage can provide several benefits to borrowers that make it more favourable than refinancing. While refinancing makes it easier for us to secure better interest rates and repayment periods, renewing a mortgage can do the same. However, renewing a mortgage allows us to change lenders more easily than refinancing.
These are the benefits of renewing a mortgage:
Get a New Lender
Any time we renew a mortgage, we can change our lenders. This allows us to continue experimenting with different lenders until we find someone that gives us the best terms. While it can take some time to find a good lender, we can keep our homes without having to worry about a previous lender.
Secure Better Deals
Mortgage renewal gives us many opportunities to find good deals. While refinancing can provide more favourable terms than a previous mortgage, we can renew our current mortgage term if we can’t find anything better. However, if we do find something more appealing, we can renew our mortgage with better terms without being locked in for longer periods.
Renew Mortgage vs Refinance Mortgage
When we’re trying to decide which route to go, it’s best to look at our current mortgage and decide what makes sense. Working with an experienced mortgage broker can help simplify what is often a tough decision.
Ultimately, either option can work, it’ll just take time to figure out which one will provide better benefits. This is why it’s important to research both options with your mortgage broker, before choosing one.
If your mortgage is up for renewal, give us a call toll-free at 1-877-383-1577. We can help you explore your options and help make sense of whether you should be considering renewing or refinancing. Alternatively, you can apply online and quickly see how 30+ years of experience can help you become mortgage-free faster!