Until recently, homeowners looked forward to renewing their mortgages as they were likely renewing at a lower rate and had several financial institutions competing for their business.
Consumers were negotiating from a position of power knowing they could leave without penalty if their demands were not met.
This is no longer the case as much of the negotiating power has shifted back to the financial institutions due to the expansion of the mortgage stress test.
When your mortgage is up for renewal, your financial institution will mail a letter stating the new term and interest rate of your mortgage. In most cases, you are not subject to the mortgage stress test and are simply signing the letter to renew your mortgage — easy.
- Do not sign the renewal letter that is automatically sent to you in advance of your renewal date. Always speak to someone and negotiate.
- Consider the financial institution’s reputation, flexibility regarding pre-payments and rates when deciding on a lender. The stress test makes it much more difficult to change lenders so best to pick one you are comfortable remaining with long term.
- Your credit score is important. Make your payments on time and try to avoid excess debt as the rate you will be offered is risk based. Try to put yourself in a position to pass the stress test so that more lenders will compete for your business.
- If you need a loan, delay applying for it until after your mortgage renews. That loan could be the difference between passing or failing the stress test.
- If you have a loan and are planning to pay it off, do so before you renew the mortgage (ideally a couple of months before). By eliminating that debt, you will be perceived as less risky and will likely be offered a better rate.
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