If your mortgage is up for renewal, you might be following all things real estate and interest rate-related more closely than ever.
In March of 2022, the Bank of Canada announced its first interest rate increase in several years and raised rates six more times last year. Including the most recent 25 basis point increase in January, the Bank of Canada's interest rate has increased from 0.25% at the beginning of 2022 to 4.50%. Since the January increase, the interest rate has been holding steady.
Financial institutions use the Bank of Canada's rate as one of the factors against which to set the mortgage interest rates they offer to customers. If you're renewing in a high or rising interest rate environment, your monthly mortgage payments may go up – unless you have already made some lump sum payments.
What does this all mean if you have a mortgage renewal on the horizon? We spoke with Olympia Baldrich, Vice President of Retail Products, 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 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 call, you can still expect to hear from TD anywhere from four to five months in advance of your maturity date.
Baldrich said she 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 are waiting until the last minute to commit to a new rate and renew.
Baldrich stresses that TD customers do have options that a TD Mortgage Specialist can help them navigate.
That's why 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 on your desktop or smartphone 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. But you don't have to. 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 renewal 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. With an open to pre-payment TD mortgage, you can make lump sum payments in any amount and at any time.
With a closed to prepayment TD mortgage, you can only make a lump sum payment during your renewal period. Outside of this timeframe, TD customers can make a maximum lump sum payment each calendar year. At TD, that number can be up 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 a higher interest rate environment, Baldrich recommends customers make more frequent 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.
"Those payment increases can make a significant impact on their outstanding balance at renewal," Baldrich 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.
In a high interest rate environment, 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, Baldrich 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 can tolerate risk on the understanding that they may not be able to predict their outstanding balance upon renewal.
Baldrich notes that if customers are uncomfortable with their interest rate volatility, but have a variable rate mortgage, there is the option to switch to a fixed rate mortgage at the current rates in place at the time of the change. When switching, the term selected must be at a minimum the lesser of three years or the remaining period of the original term.
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 the current rate then applicable to one-year open terms. 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.