Mortgage renewals – a big topic over the past 6 weeks including in the one article a few weeks ago(in my newsletter) where we talked about how borrowers were in effect penalized if they wanted to switch lenders at the end of their term.
Historically, a lender sends you a renewal letter and you can accept that offer or shop it around but if you opt for the latter then you need to be stress tested (quick remind that is the higher of contract rate + 2 or 5.25%)
Why does this matter? Typically the lenders’ offer is not competitive on fixed rate products. Instead they go for more of a convenience factor and hope that borrowers don’t shop it around.
Why is this important?
Well per a Financial Post article that came out, 3.4M Canadian homeowners will renew their mortgage in the next 14 months. In looking at this group, 74% of them are on fixed rate terms and will experience big payment shock as they look to renew or switch to another lender. Remember, if you switch to another lender you need to qualify at stress test rate (so if your current lender is offering you 6% and lender B is offering you 5.6% then you would need to qualify for your mortgage at 7.6% with lender B in order to switch).
Well the good news is that your current clients now have more options. Previously the options were:
– Extend Amortization
– Stay with current lender
– Sell their home or rent out a portion of home
– Switch lenders
But you may thinking, Matt you just wrote that they need to qualify at an even higher amount which could affect their ability to switch lenders.
GREAT NEWS!! Some lenders are already rolling out policies to help borrowers (and also their own books of business) where they would be qualifying as contract rate (the rate they offer that fixed mortgage at). This is tied to the B-20 guidelines proposed by OFSI but the lenders who have rolled out have said that in order to qualify at contract rate:
– The loan amount cannot increase
– Amortization cannot be extended
– Original mortgage must have been insured
There are two monoline lenders that I have seen role this out this week but expect to see more lenders (including banks) implement similar policies.
P.S. Contract rate is just the mortgage term for saying “the rate the mortgage is offered at”
P.P.S With rates coming down further on renewals it offers you two things:
1) An opportunity to touch base with any of your previous clients that you helped out 3-5 years ago (especially if their mortgage is coming up for maturity)
2) Its an opportunity for you to touch base with your current buyer clients to get a new pre-approval (see rates are normally given a 25-50 bps premium for pre-approvals. With the lowering of rates it may allow some buyers to move into a price point that is still affordable but ticks off their must haves)
