Refinancing or Renewing? What is the difference?

The other day I had a client call me looking to renew his existing mortgage that was coming up to it's expiry date.  We started talking about the particulars of his mortgage and the question came up...do you need any extra $$ for debt consolidation?

I explained that now really is the time to do this if he wanted to he would not incur a penalty because the mortgage was already expiring.  He thought for a moment and then said "no" but was curious about the process if he did need cash.

This is when I realized that many people do not think of their mortgage as something they can adjust in the event they need $$. 

Here is the lowdown in Canada right now.  Say you have an existing mortgage that is coming up for renewal.

To be clear, a renewal is when your existing mortgage term is expiring with your bank and you need to do one of three things:

1. Renew with the bank you have your mortgage at by calling and having them roll you over into another term & rate.  
2. Call your local Mortgage Broker to inquire about rates available at other lending institutions.
3. Pay off your mortgage all together

Now of the above three options, most people select option #1 because it is convenient and easy at the time. BUT many times it can cost you BIG $$ in the long term.

Why?

Because banks do not always offer you the best renewal rate when you are rolling over from one term to the next.

If you are not paying attention, they can put you into a term that is too long, or worse, give you a rate that is way higher than what is currently available from other banks.

They know and hope that you DO NOT do your homework to see if they are being competitive. 

This is more common than you know and a serious argument for people to really do their due diligence!

Now with Option #2, this is usually the best way to ensure that you are receiving the best rate and time of term for you.

I know I am biased when it comes to Mortgage Brokers, but really Independent Brokers spend the time to ensure that you don't get into a long mortgage term that requires a penalty to break...AND they ensure that you are getting the best rate available for your specific circumstance.

ALSO, the best part is that the Broker is FREE to you as the new bank pays them when the mortgage funds!  Really a win win situation!

Now with Option #3, unless you have recently won the lottery or have come into some major $$ through an inheritance or other windfall, most people do not have this as an option at all.  But in fairness, it is an option so I had to include it.

Now once you have selected your option of what you would want to do, you need to consider if you need more $$.

This could be for a variety of reasons:

• Pay off debt
• Renovations
• Tuition for school
• Investments in a business or the stock market
• Buy another property

If you choose to refinance (add more to your mortgage) there are a few things that you will have to do regardless of whether you change banks or not.

1. You will need an appraisal to determine the current value of your property (unfortunately, most times the property assessment is not good enough)
2. Lawyer or Notary to re-register the new $$ amount on your property title

Both of the above do cost you a bit of $$, of which you can guesstimate the costs and add it into the refinance amount if necessary (your mortgage Broker can help you with this too).

In the end, a renewal is a simple switch into a new property and is worth the effort to investigate your options.

Don't go to all the trouble of getting the best deal on purchasing a property, finding the best rate once purchased, and then drop the ball 5 years later because it was easy.

Really, if you don't fight for the best use of your money, who will?

Until next blog...

Liz

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