If your mortgage is up for renewal, you might be following all things real estate and interest rate-related more closely than ever before.
Financial institutions use the Bank of Canada's rate as one of the factors to help determine the mortgage interest rates they offer to customers. If you're renewing in an elevated interest rate environment, your monthly mortgage payments may go up – unless you have made some lump-sum payments over your term, at renewal, or done something else to reduce your principal balance.
So, what does this all mean if you have a mortgage renewal on the horizon? We spoke with Patrick Smith, Vice President, Product Management, Real Estate Secured Lending at TD, about mortgage renewals and what you should consider, whether your mortgage renewal is imminent or even years away.
What is a mortgage renewal?
At the end of your TD mortgage term, you have an opportunity to negotiate your interest rate and term.
How early can you renew a mortgage?
You can renew a closed TD mortgage 120 days prior to its maturity date without a prepayment charge or additional fees. With a TD mortgage, you can reach out to discuss your renewal options well in advance, but even if you don't reach out, you can still expect to hear from TD anywhere from four to five months in advance of your maturity date.
TD customers can also expect to get a renewal offer letter in the mail about a month ahead of their maturity date that outlines renewal options. Smith said he understands that for some customers, it might be difficult to commit to a new, increased rate months before their official renewal date since it will mean the amount of their current mortgage payments will increase. As a result, many TD mortgage customers might wait until the last minute to commit to a new rate and renew.
Smith stresses that TD customers do have options that a TD Mortgage Specialist can help them navigate. You can use TD Mortgage Direct, which will connect you with a TD Mortgage Specialist when you answer a few questions about your home financing needs.
It is a good idea to start the conversation about your TD mortgage renewal early. You can learn about the options available to you and make a decision without the stress of a rapidly approaching deadline looming over you.
How can you renew your mortgage at TD?
Once you are in your renewal period, there are three ways to renew your mortgage at TD:
1. Online with EasyWeb or on your mobile device through the TD App
2. In person by booking an appointment with a TD Mortgage Specialist
3. On the phone with a TD Mortgage Specialist
Can you pay off your mortgage at renewal?
Yes, you can pay off your mortgage at renewal.
Here's what happens when a TD mortgage is renewed:
The customer agrees to a new interest rate and payment schedule for a specific period of time (the new term). The new term will have its own prepayment privileges which may be the same as the previous term, or different if, for example, you switch from an open to a closed mortgage. The type of mortgage you have dictates when and how you can make lump-sum payments.
If you have an open mortgage term with TD, you can make as many lump-sum payments as you’d like each year, without prepayment charges. The minimum amount you can prepay is $100.
With a closed to prepayment TD mortgage, lump-sum payments are limited to 15% of the original principal amount each calendar year. If you want to prepay more than 15%, a prepayment charge may apply.
What can you do now, even if your TD mortgage is not up for renewal right now?
Wondering what you can do if you're mid-way through your TD mortgage term? In an evolving interest rate environment, Smith recommends customers consider increasing the frequency of their payments (from monthly to biweekly, for example), make lump-sum payments, or increase their mortgage payments — even by $25 or $50 per installment if they're able to.
"Those payment increases may make a significant impact on their outstanding balance at renewal," Smith said.
The goal is to bring down your principal so that when it comes time to renew at the end of your term, you have a smaller outstanding balance.
This can be an option whether you have a fixed or variable rate mortgage (learn about the difference between the two here).
With a TD variable rate mortgage, your regular payments stay the same even if interest rates fluctuate. If the TD Mortgage Prime Rate decreases, for example, more of your payment will go towards the principal. And if the TD Mortgage Prime Rate increases, more of your payment will go towards interest.
If you haven’t made any changes to your payments, you might have a higher outstanding balance than you anticipated at the end of your term.
Are variable rate mortgages still a good option?
The type of mortgage you choose is ultimately a personal decision based on your individual situation — and risk tolerance, Smith said.
Some customers might prefer stability. With a fixed rate mortgage, the amount you pay towards your principal and interest will remain the same no matter how much interest rates rise (or fall) during the term. You can also predict what your outstanding balance will be at the end of your term.
With a TD variable rate mortgage, your regular payments stay the same; it's the portion of your total mortgage payment that goes towards each of your principal and interest that can fluctuate when interest rates change. These mortgages might be an option for those who value flexibility and can tolerate risk on the understanding that they may not be able to predict their outstanding balance upon renewal.
Smith notes that if customers are uncomfortable with interest rate volatility, but have a variable rate mortgage, there is the option to convert to a fixed rate mortgage at the current rate in place at the time of the change. If you are converting from a closed variable rate mortgage, the term selected must be at a minimum the lesser of three years or the remaining period of the original term and you will be required to increase your payments to align with your remaining amortization.
What happens if you don't renew a TD mortgage on time?
Your TD mortgage may auto-renew into a one-year open mortgage at your renewal offer rate. That might mean a higher rate than anticipated.
The bottom line: start the renewal process early for a TD mortgage and speak to a TD Mortgage Specialist about any questions you may have along the way.
For more information on TD Mortgage Renewals, click here, and if you’re looking for personalized advice without the wait, visit TD Mortgage Direct here.