What should I do prior to renewing my mortgage?

[Fever]

I was wondering what one should do prior to renewing your mortgage for the first time. I have done research about negotiating the best rates etc. What I am interested in knowing is what you should do with your finances prior to the renewal. Should you try to pay down as much debt as possible or is it best to consolidate all into the new mortgage? Is it bad to apply for more credit before the renewal or should you apply after the renewal? I just want to make sure I have everything covered before the I go into the actual negotiating phase with the lender. Any of your thoughts would be greatly appreciated and if I missed anything please feel free to add. Thanks!

[dougboswell]

The one thing that you do NOT do is add debt before renewing your mortgage. Applying and obtaining new credit lowers your credit score and increases your debt load. this will affect your TDS and GDA ratios which are looked at by the lender.

If you decide to consolidate your debt into your mortgage this will be a refinance and an appraisal will be done on the house. You will have to pay lawyer fees.

If you only renew the mortgage this will not cost anything.

REMEMBER: Do not take on any new debt until after closing. Pay down debt before applying.

[bobbyreyes]

Before refinancing your mortgage always check the interest rate. Refinancing can be done for many reasons like changing the duration, switching from variable to fixed rate, paying off debts, for increasing cash flow or making any other investments and more. You can Take help from your financial advisor regarding this he will guide you in proper direction.

[MortgageQueen]

Also carefully consider the length of Term you want. If you don't think you'll remain in your home for another 5 years, do NOT take a fixed rate 5 year term, as it will be costly to break. You could either consider a shorter term, or go to a variable rate, which only costs 3 month's interest in penalty.

[chillys-willy]

Question: If you take a 5 year term with optional lump sum payment options and you are close to the end of your mortgage, what happens when you are done paying?
For example, you have $40,000 left and Tangerine offers a 15% Lump sum option every year. What happens when you put a large lump sum for a few years and the principal is paid off? Are there any penalties? It doesn't seem like there should be but I am wondering.

[mindou]

It is always good to live without a mortgage! One advice I would give you is using a mortgage broker to get the best rates and conditions on the market. Flexibility of potential lump sums and possibilities to double your monthly payments are always interesting because it can be adapted to your financial situation of the moment. For example, if your obligation is $1000 per month but you can pay $2000 during some months, well you will reimburse faster than you think! Also, if you can renew your mortgage by going with a shorter amortization period (always respect what you can pay without going under pressure...) go for it! Finally, another strategy would be to contribute to your RRSP as much as possible and reimburse the mortgage with the income tax return.

[MortgageQueen]

Question: If you take a 5 year term with optional lump sum payment options and you are close to the end of your mortgage, what happens when you are done paying?
For example, you have $40,000 left and Tangerine offers a 15% Lump sum option every year. What happens when you put a large lump sum for a few years and the principal is paid off? Are there any penalties? It doesn't seem like there should be but I am wondering.

I'm not sure what your saying CW? If you have an option to pay off 15% lump sum a year. . .that could only accumulate to 75% of your total mortgage, so you could not pay it off prior to end of term.

[chillys-willy]

Usually, I would choose a 10, 15, or 20 year amortization with a 5 year term. Now I am at a time where I only have 2 years left on my mortgage. I am thinking that I might opt for a 5 year amortization so that I have more flexibility with my money in the next few years. Does it matter if I pay off the mortgage in a shorter time than the term?

[MortgageQueen]

Usually, I would choose a 10, 15, or 20 year amortization with a 5 year term. Now I am at a time where I only have 2 years left on my mortgage. I am thinking that I might opt for a 5 year amortization so that I have more flexibility with my money in the next few years. Does it matter if I pay off the mortgage in a shorter time than the term?

You can pay off your mortgage if it's within the terms of the agreement. But Lenders don't offer terms with the option to pre pay before term is done. You would have to check with your lender about their prepayment options for whatever product you choose. They may even consider switching you to a line of credit, where you can have access to your equity, but only pay on what you use. Just be very careful with this as the majority of people find it too tempting to use the money available to them.

[chillys-willy]

Thank you for the advice


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[Colsgirl]

I'm not sure what your saying CW? If you have an option to pay off 15% lump sum a year. . .that could only accumulate to 75% of your total mortgage, so you could not pay it off prior to end of term.

I understand what @chillys-willy is saying. If he has say a 5 yr fixed rate (and that is all that is left on the mortgage is 5 years at $xxx a month. With Scotia (and Tangerine as Scotia bought them out) you can increase your payments by 15% a month to pay off extra and also make annual payments of upto 15% of the initial amount borrowed (to pay off even more) without an additional charges or penalty. He is wondering if by doing this and basically paying of the end of their mortgage sooner than the 5 years are there any additional penalties.

No at Scotia there isn't because we asked! I am assuming that because Tangerine are Scotia that there isn't there either - but you should check and get it in writing in case the rules change in a couple of years. I get everything in writing!!