When does your mortgage renew? What rate of interest are you paying? Do you have any early payment privileges? Is there a payout penalty? Is it portable?
For most Canadians, the family home is the single largest purchase they will ever make, and most will need a mortgage to afford it. And yet, despite the significance of this financial decision most can’t answer any of the questions above.
It’s possible that you knew the answers at the time. You probably have a file somewhere with some paperwork in it? Maybe you can access it online? There’s a good chance you probably know more about the iPhone replacement warranty you purchased for $150 at the time you upgraded your phone than you do about your mortgage.
Knowing how your mortgage works, when it renews, and what features and penalties exist can make THOUSANDS of dollars of difference.
So do yourself a favour and save yourself a few thousand bucks by filling in Red Seal Financial’s mortgage worksheet and keep it on hand as a reference.
Who is your mortgage through?
It may be a bank or it might be a mortgage investment corporation if you did your mortgage through a broker.
Lender/Broker’s Phone Number: _______________________
Lender/Broker’s Customer Service Email: ______________________________
Lender/Broker’s Website: ____________________________
Account #: ______________________
How long is your mortgage term?
A typical term is 5 years, but you can do an open mortgage which means it’s month to month, or you can go as long as 10 years.
Term:______________________ (i.e. 5 years, 3 years, 1 year, open)
Is your interest rate a fixed rate or a floating rate?
Fixed rates mean you pay the same rate of interest over the term of your mortgage. Floating means that you committed to a rate at the outset that was based on prime and the amount of interest fluctuates based on interest rates.
Fixed or Floating: _________________________
Annual Interest Rate: ______________________________ (i.e. 3%, 2.5%, Prime – 0.5%)
Payment Frequency: _________________________ (Weekly, bi-weekly, monthly)
Want to know more about fixed vs. floating rates?
What are the payout penalties?
Payout penalties are charged if you choose to sell your home before the end of your mortgage term. If you’ve gone with a floating rate or interest rates have gone up, it can be as little as three months of interest. If you’ve chosen a fixed rate and rates have gone down, then you might be on the hook for paying the difference in the current rate and the rate you committed to when your mortgage was funded. I.e. If your mortgage rate was 3% and rates have dropped to 2.5% the bank has to take back your money and lend it out at a lower rate than before. This means they’re making less money. And so the penalty they charge will be the spread of 0.5% for the remainder of your term. Basically you’re paying the bank what it’s losing out in interest by agreeing to let you return the money. This could be thousands of dollars.
Payout Penalty Formula: _______________________________
Note: Watch the wording in the payout penalty clause of your mortgage. Some banks based their payout penalty on the posted rate. So if you got a discount off the posted rate, you may still be on the hook for penalties even if rates have gone up. i.e. If your rate was discounted by 0.75% off the posted rate, and rates have gone up by 0.5% you might think you’re in the clear. But if your payout penalty was based on the posted rate then you might still be on the hook for 0.25% for the remainder of your term.
When does your mortgage renew?
One of the most important facts to document is your renewal date. Get your renewal date and put it in your calendar. Put a reminder in your calendar for two months out. This will give you enough lead time to get your important documents together so you can shop your mortgage around.
Your bank will likely offer to renew your mortgage. But the rates they offer you at first won’t be the best rates they can give you. You still need to negotiate even as an existing client. By getting organized well ahead of time, you’ll be in a position to proactively negotiate the best rate you can.
The documents you’ll want to gather include:
- Personal income tax returns for the past two years
- Your notice of assessment for those past two tax returns.
- A current paystub.
- Your property tax notice.
- A personal net worth statement that outlines your current assets and debts.
- An employment letter.
- And if you’re self employed, you’ll need to include financial statements for your business on top of the above items.
By gathering the above information ahead of your renewal date, while you can take the time to find it, and more importantly understand it, you’ll be doing your future self a huge favour and potentially save yourself thousands of dollars in making an informed decision. And by setting up a future dated reminder so you can be proactive at renewal time, you’ll be able to make sure you get the best rate possible.
Mortgage Renewal Date:____________________________