Refinancing at Renewal
Your mortgage is up for renewal. Your lender has called you, and suggested they can handle your business, you've been a good customer. Why don't you just come in and sign some papers? So, you make an appointment, and you go in, without another thought.
Is this the right approach? Nope.
When your mortgage is due for renewal, it is an ideal time for you to shop around and really understand interest rates. It might be worth your while to move your mortgage to another lender - particularly if the competition is good and interest rates are lower elsewhere. While another company is competing for your business, they may also offer you other benefits you aren't getting now - including paying any fees associated with moving your mortgage.
Doesn't moving your mortgage mean a lot of hassle? Not really. But do your homework. First, check your current mortgage and understand if there are any fees associated with moving your mortgage. (This kind of fee is extremely common - and you should expect it.) Once you know there are some costs to you, you should be looking for a lender who pays those fees.
Second, shop around. Is your current lender offering you a really good rate? Perfect! You may not want to move. Just go ahead and renew. However, if you can save somewhere else, then you should likely move, especially if your mortgage is for a large amount or you still have many years on it. Why? The long term costs of your mortgage are the result of the interest you pay over the life of the loan. The more you save in interest in the early part of your mortgage (when the amount owing is still high) the less it will cost you over time.
If your mortgage is for a very small amount, or you will be mortgage free in 5 years or less, and you are saving less than percent, you may not want to move your mortgage. The savings may not give you enough 'pay back'. Be sure you know how much the fees are to move it, and compare that to what you will be saving. If the fees are more than you save - stay put.
Third, are you getting the kinds of other options you want? Does your mortgage allow you to make lump sum payments whenever you want (or do you only have 1 day a year, on the anniversary)? The open ability to pay extra, from as little as $100 to 10 or 15 percent of the mortgage value, can make a huge difference in the long term costs to you. Every extra payment you make is money directly to the 'principal' of the loan. This means less loan that you are paying interest on!
While it takes some legwork, if you shop carefully and make the lenders compete for your business, you will usually do better.
Mortgage Guide 101. Used with permission.