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The Canadian love affair with home ownership doesn’t seem to be waning in this era of high interest rates. And many of us (me included) are facing mortgage renewals this year.
More than 3 million Canadians will be facing mortgage renewals over the next 18 months (approximately January 1, 2024 – June 20, 2025), according to Sebastien Betermier, Associate Professor of Finance at McGill University.
Those Canadians renewing will have to contend with Canada’s prime rate today of 7.20% (as of April 15, 2024), which is shaped by the Bank of Canada’s policy interest rate (also called the Canada Target Overnight Rate). The mortgage rate is typically prime minus a specific percentage, for example, prime minus 0.5%.
Unfortunately, this year many Canadians will face payments that are potentially 30% to 40% higher. Yikes.
To take the pain out of the renewal process, and make it less scary, let’s review four questions to ask your mortgage broker:
1) ‘Dumb’ Questions
You’re not the expert, so ask anything, and especially the basics. Ask about amortization periods. Review fixed-rate mortgages versus variable-rate mortgages. If your life situation has changed (increased salary, job loss or death in the family) then the pros and cons of choosing either mortgage have changed too. Feel free to ask the mortgage broker what they think is best for you.
“You have to understand as a homeowner–you are driving the bus and the money is coming out of your pocket,” says Haider Nawab, Mortgage Expert at Affinity Mortgage Solutions in Markham, “Do your own research and do not feel shy to say: Put my interests first.”
This ‘dumb question’ period is a perfect opportunity to ensure your mortgage broker is servicing you first and is aligned with your goals.
2) Do the Rates Compete with the Market?
This question offers a lay of the land and helps put your situation in perspective.
As of April 15, 2024, RBC mortgage rates are 5.17% APR for a 5-Year Fixed and 6.92% for a 5-Year Variable.
Each bank will have its strategy and outlook on interest rates, which serves as a solid resource to help you formulate your mortgage rate strategy. Major financial institutions release housing outlooks on their own or included in economic reports. This information helps you see where mortgage rates are sitting and projected to go, as well as review overall housing trends. In BMO’s 2024 Outlook for Canadian Housing, the key takeaways are:
3) Are There Any New Mortgage Products That Better Suit My Situation?
There will likely be some change in household finances versus your last renewal period, so it’s an excellent idea to see if there are any new products or options that are more aligned with your current situation.
“A follow-up to this question is: Are there any changes in government regulations affecting mortgages?” says Nawab.
4 ) Can You Provide a Breakdown of All Associated Fees and Costs With the Renewal?
One thing to remember is that fees vary depending on the mortgage broker. As pointed out in this Morningstar article:
High-volume brokers tend to have better rates, while lower-volume (boutique) brokers often have more personalized services.
The best deal may not be the lowest rate. A combination of overall borrowing cost (including fees), mortgage feature flexibility and convenience are the ingredients of an ideal deal, according to Robert McLister, mortgage strategist and editor.
Make it a point to shop around. Nawab says, “Staying with your current lender is likely the easiest option but may not be the best option.”
