How to prepare for your mortgage renewal when interest rates are high.

When interest rates are low, renewing your mortgage is a walk in the park. But when rates start to climb, the renewal process can feel a bit intimidating and overwhelming. And with Canadian interest rates steadily creeping upwards since the beginning of 2020, homeowners like you will likely face mortgage rate increases when it’s time to renew. Not exactly music to your ears, we know. 

Here are 5 things you can do to prepare for your mortgage renewal when interest rates are high: 

1. But first, some background.  
We all know interest rates are higher than they were 5 years ago, but let's put things into perspective. Are today’s rates really that high in the grand scheme of things? If we truly want to understand the current state of interest rates in Canada, it’s worth looking to the past to see how interest rates have ebbed and flowed throughout history.

Over the last 50 years in Canada, the average interest rate has hovered between 5% to 6%. So while it may seem like today's rates are looming above us, they're actually quite average (all things considered). Sure, today's interest rates may not be as jaw-droppingly low as they were in recent years, but they're still sitting at a reasonable rate in the context of history.

So, let's shed some of that doom and gloom around interest rates and embrace the fact that, with a bit of preparation, renewing your mortgage doesn’t have to be a stressful process.

Ready to do this?

2. Explore the current interest rate landscape
If you’re feeling the inevitable “pinch” of higher mortgage rates, don’t panic. The first step in feeling more in control of your mortgage renewal is to arm yourself with knowledge. And we’ve got some of that to share.

Over the past year, the Bank of Canada aggressively raised interest rates from 0.25% to 4.50% to help combat inflation. Currently, Canadian interest rates are hovering between 4.50% and 5.00%, with no signs of dropping significantly in the coming years.

So, if you're planning to renew your mortgage in the near future, brace yourself for higher monthly payments due to higher interest rates. For example, if you locked in a mortgage rate at 2.00% to 3.00% five years ago, your interest rate is likely to double, or even triple, when it comes time to renew.

The good news is: now you know. And staying up-to-date with the current interest rate landscape can help ease the transition to higher rates when renewal time comes.

3. ​Plan ahead for your renewal 
If you're someone who likes to plan for the future, then you'll want to start thinking about your mortgage renewal now.

This could mean being more realistic with your budget, putting away a bit more money into your savings each month, or finding ways to cut back on expenses. (Psst, we can help with all of those things. Check out our resources section for more great advice).

You might even consider renewing your mortgage early to take advantage of lower interest rates. At connectFirst, we allow you to renew your mortgage up to 120 days before its maturity date without any penalties, so you can lock in at a lower rate if interest rates are projected to rise.

A little pre-planning can go a long way. As your mortgage renewal approaches, start thinking about the little steps you can take to avoid payment shock and prepare for higher monthly costs.

4. ​​Take advantage of pre-payment options ​​​
When your mortgage is up for renewal, don't forget to have a chat with your lender. If you’re planning on sticking with them for another term, it's worth asking about their pre-payment options.

Many lenders offer pre-payment privileges that allow you to increase your payments by up to 20%. That way, you can chip away at your principal while your interest rate is still low.

So, if you have the funds to take advantage of pre-payment options, do it. It’s a smart move that can help you save money in the long run.

5. ​​Compare fixed vs. variable rates ​​​

When your mortgage renewal is coming up, one of the biggest decisions you'll have to make is whether to renew with a fixed or variable rate. Let's break it down.

  • Fixed-rate: A fixed-rate mortgage means the interest rate remains the same for the entire term of the mortgage, and your monthly payments stay consistent.
  • Variable-rate: On the other hand, a variable-rate mortgage means that interest rates can change based on fluctuations in the prime lending rate set by the Bank of Canada, resulting in fluctuating monthly payments.

So, which one should you choose when you renew?

While variable rates have historically been attractive due to their lower interest rates, the current interest rate landscape has made fixed rates a more appealing and stable option for homeowners. All that being said, everyone’s situation is unique. So, be sure to talk with your lender to find the right option for you.

Connect with us.

​​Remember, we’re here for you. If you’re feeling anxious about your mortgage renewal and are in need of some support, you can count on the connectFirst team to guide you through the process. We'll discuss your options and provide you with personalized advice so that you can make the best decisions for your financial future.​

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