Understanding Mortgage Renewals – What You Need To Know
Mortgage renewals are a critical component of the mortgage process, as they give you the opportunity to reassess your mortgage needs and potentially make changes that can save you money or better suit your current financial situation.
If you don't take the time to understand the mortgage renewal process, you may end up renewing your mortgage under unfavourable terms or missing out on opportunities to save money.
What are Mortgage Renewals?
If you're a homeowner with a mortgage, you may have heard the term "mortgage renewal" before. But what exactly does it mean? In simple terms, a mortgage renewal is the process of renewing your existing mortgage agreement with your existing mortgage lender once your current mortgage term has expired.
Difference between Mortgage Renewals and Remortgaging
Remortgaging and mortgage renewals are two different concepts related to home financing, both crucial to understand.
Remortgaging is the process of paying off your current mortgage with a new mortgage deal from a different lender or the same mortgage broker. This is often done to take advantage of lower interest rates, access additional funds, or change the terms of the mortgage.
Essentially, it's like taking out a new mortgage on your property and using the proceeds to pay off your current mortgage. Additionally, remortgaging is typically done before the end of the current mortgage term, while mortgage renewals occur when the current term is up.
Mortgage renewals, on the other hand, occur when your ongoing mortgage term comes to an end and you need to renew your mortgage with your current lender or find a new lender. This is typically done every 5 years, although it can vary depending on the terms of your mortgage.
The key difference between the two is that remortgaging involves switching to a new lender, while mortgage renewals involve staying with your current lender or finding a new one.
When do Mortgage Renewals Occur?
Mortgage renewals occur at the end of your current mortgage term, which is usually a period of five years, although it can vary depending on the terms of your mortgage.
At the end of this term, you have the option to renew your mortgage with your current lender or to shop around for a new lender with better rates or terms.
Additionally, it's important to note that some lenders may offer the option to renew your mortgage early, which can be beneficial if interest rates are expected to rise or if you want to lock in a lower rate for a longer period of time.
However, there may be penalties or mortgage fees associated with renewing your mortgage early, so it's important to carefully consider the pros and cons before making a decision.
Factors Affecting the Timing of Renewals
Interest rates
One of the most significant factors that influence the timing of mortgage renewals is interest rates. When interest rates are low, homeowners may choose to renew their mortgage early to take advantage of better rates.
This can help to lower monthly payments and reduce the overall cost of the mortgage.
Changes in personal circumstances
Major life events, such as marriage, divorce, retirement, or a change in income, can all affect the timing of mortgage renewals.
For example, if you experience a significant increase in income, you may choose to renew your mortgage early to increase your monthly payments and pay off your mortgage faster.
Real estate market conditions
The state of the real estate market and the overall economy can also influence the timing of mortgage renewals. If property values are rising rapidly, homeowners may choose to renew early to take advantage of increased equity in their home.
On the other hand, if property values are falling, homeowners may choose to wait until the market stabilizes before renewing their mortgage.
Mortgage term length
The length of your mortgage term can also affect the timing of your renewal. If you have a longer mortgage term, you may choose to renew early to lock in a lower interest rate for a longer period. This can help to reduce your monthly payments and overall mortgage costs.
Penalties for breaking your mortgage
Finally, the penalties for breaking your mortgage can also affect the timing of your renewal. If you break your mortgage before the end of your term, you may face penalties, which can impact your ability to renew your mortgage early.
Therefore, it's essential to carefully consider the terms of your mortgage and the penalties associated with breaking it before making a decision to renew early.
Benefits of Mortgage Renewals
Lock in a favourable interest rate
One of the most significant benefits of mortgage renewals is the ability to lock in a favorable interest rate. Interest rates can fluctuate over time, so renewing your mortgage at a lower rate can result in significant savings over the life of your mortgage.
Renew with your current lender
Renewing your mortgage with your current lender can be a more straightforward and streamlined process than switching to a new lender. Your lender may also offer you preferential rates or terms as an existing customer.
Reassess your financial goals
Renewing your mortgage gives you the opportunity to reassess your financial goals and adjust your mortgage terms accordingly.
For example, you may want to adjust your payment schedule to pay off your mortgage faster, or switch to a different type of mortgage that better suits your current financial situation.
Avoid penalties
Renewing your mortgage on time can help you avoid penalties for breaking your mortgage agreement. If you don't renew your mortgage before the renewal date, your lender may charge you penalties or fees.
Keep your mortgage repayments stable
Renewing your mortgage can help you keep your mortgage payments stable and predictable. This can be helpful for budgeting and financial planning, as you'll know exactly how much your mortgage payments will be each month.
Steps to Prepare for Your Mortgage Renewal
To prepare for the next mortgage renewal, you should keep track of your term and when it is set to expire. You can also start preparing your finances early, such as by paying down your mortgage or increasing your savings, to ensure you are in a strong financial position when it comes time to renew.
It's also a good idea to review your mortgage regularly to ensure it still meets your needs and financial goals. Here are some steps you can take to prepare:
Review your current mortgage agreement
Before your mortgage renewal date, take the time to review your current mortgage agreement. This will help you understand the terms and conditions of your mortgage, such as the interest rate, payment schedule, and any penalties for breaking your mortgage.
Assess your financial situation
Take stock of your current financial situation and assess whether your needs have changed since you first obtained your mortgage. Consider factors such as changes in income, expenses, and financial goals.
This will help you determine whether you need to make any changes to your mortgage terms, such as adjusting the payment schedule or switching to a different type of mortgage.
Shop around mortgage lenders
Don't assume that your current lender is offering you the best possible rates. Shop around to see what other lenders are offering, and compare interest rates and terms to ensure that you're getting the best new deal, be it with your existing lender or a new mortgage broker.
Gather documentation
Your lender will likely require documentation to process your mortgage renewal. This may include income statements, employment verification, and tax returns. Gather all the necessary documentation in advance to ensure a smooth renewal process.
Negotiate with your lender
Once you have gathered all the necessary information, it's time to negotiate with your lender. Don't be afraid to ask for better terms or to negotiate on fees or penalties.
Your lender may be willing to offer you better terms to keep your business, especially if you have a good payment history.
By taking these steps to prepare for your mortgage renewal, you can help ensure that you get the best possible terms when it comes time to renew your mortgage.
Alternative Options Available
If for some reason, you are not happy with the offer provided by your lender and you have tried negotiating with them to no positive effect, here are some other options you can explore:
Shop around for a new lender and new mortgage deal
If your current lender is not willing to provide a more favourable mortgage renewal offer, you can shop around for a new lender and compare mortgage deals on the market.
This can be a good option if you find a lender that offers better rates or more favorable terms. Be sure to compare deals including the total cost of the mortgage, including any fees or penalties such as early repayment charges and arrangement fee, before making a decision.
Work with a mortgage broker
A mortgage broker can help you shop around for the best mortgage renewal offer from different lenders. They can also negotiate with lenders on your behalf to help you get the best possible rate and terms.
Refinance your mortgage deal
If you are unable to get a favorable mortgage renewal offer from your current lender or from another lender, you may want to consider refinancing your mortgage.
Refinancing involves taking out a new mortgage with a new lender, which can provide you with better rates or more favorable terms. However, be aware that there may be fees or penalties associated with refinancing, so be sure to carefully consider the costs and benefits before making a decision.
Overall, it's important to carefully consider your options and compare the costs and benefits of each option before making a decision. Working with a financial advisor or mortgage professional can also help you make an informed decision about the best course of action for your individual circumstances.
