Mortgages are typically a little more complex than other types of loans. Since they involve such high dollar amounts and long amortization times, mortgages get divided into smaller terms, usually five years.

When the time is up, you’ll have some decisions to make. Signing on for another five years with your current lender may seem like the easiest option with the fewest headaches. However, shopping around and exploring your options may pay off substantially. In this post, we’ll shed some light on a few of the possibilities. 

A Background in Mortgages

Before we begin, it may be helpful to review some of the most common terms you may encounter, whether applying for your first mortgage or renewing your contract.

• Amortization Period: This is the full length of time it will take to pay off your mortgage given your current payments. In Canada, the maximum is generally 25 years.
• Mortgage Term: You will have several terms throughout your amortization period. At each renewal, you have the opportunity to renegotiate or switch to a different lender.
• Fixed Rate Mortgage: Your interest rate is set for the duration of your term, usually 5 years. A fixed mortgage provides you with peace of mind that your payments won’t increase even if interest rates rise. On the other hand, you won’t benefit from lower payments when rates decrease.
• Variable Mortgage: Your payments can fluctuate as interest rates rise and fall. Variable rates are often lower than fixed mortgages. However, this is not guaranteed, as the last couple of years have shown.
• Refinancing: Unlike a renewal where your contract comes to an end, refinancing means breaking your mortgage early. You may do this after a significant drop in interest rates, but there may also be penalties to be aware of.

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Pay It Off in Full

Every homeowner looks forward with joyful anticipation to the moment when their mortgage is paid off completely. As soon as that final payment clears the bank, it can feel like a massive weight is off your shoulders. You now own your house free and clear, and that is a moment worth celebrating.

If you’re in the early stages of homeownership, this dream may feel very far away. Just keep in mind that every payment brings you closer, and you will get there one day!  

Paying your mortgage off is the most satisfying renewal option of all, and it is a worthy goal to work toward. If paying your mortgage in one fell swoop is too ambitious for this term, you still have options. 

If it’s financially feasible, you can increase your payments when renewing your mortgage. This will pay down more of the principal and help you reach your goal of becoming mortgage free faster. 

Negotiate With Your Current Lender

If you’re happy with your current lender, renegotiating may be the most straightforward path. Still, you shouldn’t blindly renew with the same lender before examining all of your options. Renewal time is your chance to reconsider your payment frequency, the length of your term, and whether you’re on a variable or fixed rate mortgage. 

Begin your research well in advance to ensure you are coming from a position of strength. The lender is more likely to take you seriously when you arm yourself with accurate information about current interest rates and trends. 

Connect With a Mortgage Broker

You are also under no obligation to stay with your existing lender when your mortgage is up for renewal. There are options far beyond the major banks and credit unions. By working with a mortgage broker, you can quickly evaluate dozens of lenders to see what terms and interest rates they offer. 

Since mortgage loans can amount to hundreds of thousands of dollars, even a small decrease in your rate can make a difference in your monthly payments. The downside of switching lenders can include another credit check, passing the stress test again, and potential fees to qualify for a new loan. Your mortgage broker can help you understand the contract and negotiate for the best terms.

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Should you downsize instead of renewing your mortgage? If that’s what you decide, the posts below will help:

• What All Downsizers Need to Know About Buying and Selling in Ottawa
• Is It Better to Rent as a Senior in Ottawa?
• What Is the Art of Letting Go? How to Declutter Your Home At Last

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What If You Decide Against Renewing?

What if you decide you no longer want a mortgage at all, but you don’t quite have enough funds to pay it all off at renewal time? Depending on how long you’ve owned your home, you may still have an opportunity to become mortgage free. Instead of agreeing to another term, you may decide that downsizing to a less expensive property is the right path.

In fact, as housing prices and the cost of living keep increasing, we are seeing more homeowners downsize at a younger age. The longer you’ve owned your home, the more equity you have to empower a change in your life.

Housing values in Ottawa have soared over the last decade. If you purchased your home years ago, your equity gains will be significant. After some reflection and an honest look at your lifestyle and goals, you may decide to downsize earlier than you originally planned. Start by asking yourself some questions. 

• Do you find that your house is bigger than you need?
• Are there rooms in your house that only get used once or twice a year or not at all?
• Would you be more comfortable financially with a less expensive lifestyle?
• Does the thought of spending less time cleaning and maintaining a home fill you with joy?
• Were you planning to downsize within the next few years anyway?

Your answers to the above questions will shed some light on the best move for you. No matter what you decide, at least you know your options. As a well-informed homeowner, you’re in a better position to negotiate for the best possible outcome. 

Do you want to explore the opportunities in Ottawa Real Estate? Whether buying, selling, or investing, our experts are happy to help you achieve success. Reach out today to 613.829.7484 or mail@chellteam.com to begin a conversation.