Start early and do your research when renewing your mortgage

OTTAWA — A surge in mortgage renewals, rising interest rates and new stress testing rules will are conspiring to make refinancing your mortgage more complicated and more expensive.

Mortgage broker Kelly Wilson, co-owner of the Wilson Team mortgage brokerage in Ottawa, says a majority of Canadians renew with their same lender, but it’s still important to check out your options.

“If you can save yourself 30, 40, 50 basis points, it’s going to save you thousands of dollars over the next five-year term,” Wilson says.

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Around 47 per cent of all existing mortgages will need to be refinanced this year, according to CIBC estimates, up from the 25 to 35 per cent range in what the bank says is a typical year. It attributes the increase to the unintended consequence of regulatory changes in recent years.

The surge in renewals comes as mortgage rates have started to move higher.

Several of Canada’s big banks have raised their posted rates for mortgages in recent days, while special offer rates have been trending higher since last summer.

Offers for five-year fixed mortgage rates have moved north of three per cent in recent weeks compared with under 2.5 per cent a year ago, according to rate-watching website Ratehub.ca.

Wilson says that means if you’re renewing at a higher rate than you’re currently paying it will mean your mortgage payments rise, assuming the amoritization period remains the same.

Homeowners with uninsured mortgages who stretched themselves to the limit when they bought their home and are looking to renew their mortgage may also face additional challenges.

Under the rules brought in at the start of the year, if they are looking to change their lender when they renew their mortgage they may have to face a new stress test.

That means, for some borrowers, it may not be possible to move their mortgage to a different bank, leaving them with less power to negotiate with their current lender.

Wilson also says if you have a home equity line of credit, it may cost you a little more if you want to move your mortgage, even if you don’t have an outstanding balance on the line of credit.

“You might save on the rate, but because of the fees you might not be able to move around,” she said.

Grant Rasmussen, CIBC’s senior vice-president of mobile advice, recommends you start doing your homework up to six months ahead of your actual renewal date.

He says that means talking not just with your lender, but also with your financial adviser to get an updated look at your expenses and income and how that may have changed since you first obtained your mortgage.

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“It’s important to make sure you do the math and you feel like you’ve figured out how can I do the best for my family,” he said.

He notes that starting early may allow you to lock in a rate, which could save you a few bucks if rates continue to rise this year.

You will also have to weigh the decision of a fixed versus a variable rate mortgage. While the variable-rate offers are lower than the fixed-rate offerings, the Bank of Canada has raised its influential overnight rate target — which affects variable rate mortgages — three times since last summer and suggested it is on the path to higher rates.

“How comfortable are you with risk and how much peace of mind do you want? That’s a trade off,” Rasmussen said.

But whatever your situation, he stressed to start early.

“You don’t want to end of feeling time pressed and feeling like you have to make these decisions without really mapping out a plan.”