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Have to renew your mortgage before rates drop?

So much for timing. Here are some options for faster budget relief.

If your mortgage renewal clock is ticking, and you’re worried that rates might drop soon after you lock in — you’re not alone.

Over 100,000 Canadian mortgages a month are coming up for renewal, running smack into today’s higher rates and potentially hundreds of dollars more added to mortgage payments

Finally, however, some economists are saying out loud that they expect the Bank of Canada to start bringing its policy rate down sooner than forecast — perhaps mid-2024.

By renewing your term before then, are you doomed to deal with outsized mortgage payments long after rates fall? Not necessarily. Let’s take a look at some options that could get you a better budget faster.

Switch to the lowest 1-year fixed rate in Canada

If you’re buying a home or switching at renewal — this product may stop the (mortgage) clock.

True North Mortgage is a top national brokerage specializing in better rates and mortgages. Their in-house lender, CMHC-approved THINK Financial, has recently expanded its Rate Relief™ product to include a low 1-year, fixed-rate term.

Lower than any other 1-year rate around (lower even than True North’s best 5-year rate), you’ll get reduced payments now and a chance to renew into lower market rates at the end of the term. There are no hidden fees, though a non-renewal fee will apply if you choose not to stay. Read more about their Rate Relief mortgages and eligibility here.

A short-term fixed rate may get you into lower rates faster

The popular choice for Canadian home buyers and owners is a 5-year fixed mortgage rate (typically chosen 60% of the time).

But considering rate drops are on the horizon, you may want to consider renewing with a shorter-term fixed rate, such as 2- or 3-year, which will give you a shot at lower rates earlier.

These short-term rates are currently higher than 5-year rates. If you think your budget can handle it, ask your expert broker to run the (mortgage) numbers to see if this option will help you save more over time.

The rewards (and risks) of a variable rate

If variable rates are at or near their peak (after the fastest hike cycle since the ‘90s), renewing with a 5-year variable-rate mortgage means you’d see rate relief with each drop announced by the central bank (i.e. not wait for the end of your term).

The risk is that economic and world events conspire to take rates even higher to fight inflation. You'll need to consider your ability to hang on if that happens — and if you'd still save in the end when rates do start to drop.

Extend your amortization while you wait

You may have the option of extending your amortization (the total loan time), whether you choose a 5-year term or a shorter one — which may lower your payments despite having to renew into a higher mortgage rate.

This strategy could help bridge the budget stress until you’re (finally) able to get into lower rates and payments, assuming rates have dropped in time for your next renewal.

Can you break your 5-year term for a lower rate?

True North says some clients prefer not to veer from the extended 'budget certainty' of choosing a 5-year fixed rate. If rates go that much lower during your 5-year term, your expert broker can help determine whether the penalty to break your contract is worth any savings to start a new term at lower market rates.

How long can you hold off to renew?

Your renewal period starts 120 days before your contract expiry date. During that time, you’ll need to pick a rate and term offered by your lender or switch to a better rate or product with another lender. 

If you wait too long, hoping for rates to change before pulling the trigger, you risk missing your expiry date and being placed into a short fixed term at a higher interest rate (often prime rate plus 3% or more).

It’s best to connect with your expert mortgage broker as soon as possible. They’ll do the work for you to find your best rate and lender options, and time it right to help you save over your next term.

Plus, they’ll immediately hold your rate (if possible) in case they go up while you think about it; you’ll still be able to get a lower rate if they fall before you sign.

Make good use of your time — with exceptional mortgage advice

True North Mortgage's friendly, expert brokers are always here to help, with several convenient ways to connect or apply. With over 14,000 5-star reviews and counting, they’re highly trained to find your best savings strategy quickly — whether you’re a first-time buyer, renewing or refinancing, or looking for your next home.

Get fast, expert mortgage advice to save thousands with your best rate and stress-free process. Contact Canada's No. 1 Mortgage Broker today.