Mortgage renewal

[Nicola]

Hello,

This may be a dumb question, but I`m just wondering exactly how it works with a straightforward mortgage renewal.

For example:
Original 5 year fixed-term mortgage, 25 year amortization: $125,000; monthly payment $650 (variable rate P -.5%, but fixed monthly payment)

At the end of the 5-year term, the principal is $110,000

If I renew at the same bank with another 5 year, fixed term mortgage (without refinancing), what exactly happens?

- Do I just sign a renewal continuing the previous mortgage? (but I guess I wouldn`t get as good an interest rate) Does the payment remain the same?

- Or is it a `new` mortgage? If so:
Amortization: 20 years(?)
Based on principal of $125,000 or $110,000?
Payment? (I would most probably make it higher than just the current variable rate, but it would be nice to know the options.)

Thanks,
Nicola

 

[Sherilynn]

Greetings.

Your bank will likely send a renewal notice giving you several choices for renewal (various term lengths, variable or fixed, open or closed). You select the option you want and send the form back. The renewal interest rates should include a comparable discount to the one on your original mortgage. The payment will change if the interest rate or other conditions have changed.

But you may want to consider extending your amortization back to the maximum (lowers your payments, increasing cashflow) or pulling out some equity. Pulling out equity requires an appraisal, but puts cash in your pocket for other transactions. And if you also extend your amortization and have a lower interest rate, you could still end up with lower payments.

Regards,
Sherilynn

 

[NJang]

ThMQUOTE (Sherilynn @ Apr 20 2010, 09:02 AM) Greetings.

Your bank will likely send a renewal notice giving you several choices for renewal (various term lengths, variable or fixed, open or closed). You select the option you want and send the form back. The renewal interest rates should include a comparable discount to the one on your original mortgage. The payment will change if the interest rate or other conditions have changed.

But you may want to consider extending your amortization back to the maximum (lowers your payments, increasing cashflow) or pulling out some equity. Pulling out equity requires an appraisal, but puts cash in your pocket for other transactions. And if you also extend your amortization and have a lower interest rate, you could still end up with lower payments.

Regards,
Sherilynn
May I ask with regard to the new standard for qualifying (for both principal & investment properties) where the new rules state that in order to qualify one must meet the same criteria as if applying for a fixed 5-year mtg... whether this same criteria would now apply to renewals as well?

If not, then is the obvious (and preferable) choice to stick with the renewal rather than attempting to re-qualify under the stricter new rules?

Thx, Norm...

 

[RobMacdonald]

There was one important step left out in the process above. About 4 months prior to the renewal date, contact a mortgage broker and get pre-approved for a competitive interest rate. As you approach the renewal, you should be very aware what the market if offering for the type of term you are looking for.

Keep in mind that the bank is not going to give you there best offer in the renewal notice. Do not sign this document. Know what your options are first, then call the bank and let them know that you`ve been speaking to a mortgage broker. You will be surprised how the offer will change. If they can`t do better than the mortgage broker, you know that you have some options.

Be very cautious of each parties time and effort in the process. Don`t get stuck going back and forth with .01 or .02%. Give each party ample opportunity to put there best offer forward, and then make your decision.

The new terms offered by the bank will be the based on the original amortization, less time elapsed. So if you origially had 25 years and you are completing a 3 year term, the new amortization will be 22 years. If you plan to increase the amoritization or the amount of the mortgage, you will probably have to go through the refinance process.

 

[RobMacdonald]

QUOTE (NJang @ Apr 20 2010, 06:29 PM) ThM
May I ask with regard to the new standard for qualifying (for both principal & investment properties) where the new rules state that in order to qualify one must meet the same criteria as if applying for a fixed 5-year mtg... whether this same criteria would now apply to renewals as well?

If not, then is the obvious (and preferable) choice to stick with the renewal rather than attempting to re-qualify under the stricter new rules?

Thx, Norm...

Normally you don`t have to re-qualify for a renewal. As long as your payments are made as agreed, then you should just have the option to renew. If you want to make a material change to the mortgage, then the new rules may apply. If your mortgage is still in a high ratio position, you may not have any options as a new mortgage is not available over 80% LTV.

If the current balance puts you at less than 80% LTV, then the new rules probably wouldn`t have that much affect, and you would have some options to refinance the mortgage.

 

[Thomas Beyer]

QUOTE (Nicola @ Apr 20 2010, 01:27 AM) ...

If I renew at the same bank with another 5 year, fixed term mortgage (without refinancing), what exactly happens?

- Do I just sign a renewal continuing the previous mortgage? (but I guess I wouldn`t get as good an interest rate) Does the payment remain the same?

- Or is it a `new` mortgage? If so:
Amortization: 20 years(?)
Based on principal of $125,000 or $110,000?
..
A renewal is at the option of your current lending institution .. but is usually offered but without re-qualifying. No questions asked, just check a box along several options.

The payment will be higher or lower depending on interest rate but in your case would be $110,000 and 20 years at the prevailing, NON-DISCOUNTED rate.

Thus, it is usually better to shop around and then decide what the best rate is, often over 1% better. Perhaps the same bank, perhaps another .. but: you have to re-qualify ! More work .. but far better rate !

 

[Thomas Beyer]

QUOTE (NJang @ Apr 20 2010, 06:29 PM) ThM
May I ask with regard to the new standard for qualifying (for both principal & investment properties) where the new rules state that in order to qualify one must meet the same criteria as if applying for a fixed 5-year mtg... whether this same criteria would now apply to renewals as well?
no
QUOTE (NJang @ Apr 20 2010, 06:29 PM) If not, then is the obvious (and preferable) choice to stick with the renewal rather than attempting to re-qualify under the stricter new rules?
re-qualifying means far better rates .. usually 1% or more !

 

[Sherilynn]

I stand corrected.
Our mortgage renewal documents did not list discounted rates.

I refinance ours anyway. If you have a good history with your institution, it should be quite easy to requalify and get the terms and rate that you want. And I completely agree with shopping around before automatically resigning with your current bank.

When a couple of hours of legwork can save you thousands of dollars, why wouldn`t you shop around and/or refinance?

Regards,
Sherilynn

 

[bizaro86]

I have a question about this regarding CMHC insurance. If I have a mortgage that I paid CMHC insurance on, that CMHC insurance covers the whole amortization of the mortgage. So I understand that I can "transfer" the mortgage to another institution on renewal and keep the benefits of the CMHC insurance. Is this correct?

Also, what happens on a property that met the CMHC guidelines on original financing, but no longer does? CMHC has already written the insurance, so it should still be valid for renewal, even at another institution?

Michael

 

[Nicola]

Thanks everyone for the replies.

We are in kind of a difficult situation as we are non-resident investors. Last time I checked with our broker (a few months ago) regarding new mortgages (not renewing existing ones), there were practically no banks that would give us a mortgage. (Only one major bank would give us one - if we had a 50% downpayment!)

I will check with our broker again, but my guess is that our best bet is to stick with our current bank and try for a discounted rate.

 

[Thomas Beyer]

QUOTE (Nicola @ Apr 21 2010, 05:00 PM) Thanks everyone for the replies.

We are in kind of a difficult situation as we are non-resident investors. Last time I checked with our broker (a few months ago) regarding new mortgages (not renewing existing ones), there were practically no banks that would give us a mortgage. (Only one major bank would give us one - if we had a 50% downpayment!)

I will check with our broker again, but my guess is that our best bet is to stick with our current bank and try for a discounted rate.
switch broker perhaps. Last time I checked non-residents can get up to 65% or even 70% .. certainly more than 50% !

 

[Nicola]

QUOTE (ThomasBeyer @ Apr 22 2010, 09:37 AM) switch broker perhaps. Last time I checked non-residents can get up to 65% or even 70% .. certainly more than 50% !

We have five mortgages at 75% with one bank and five at 65% with another bank. Maxed out at both. Things may have gotten easier since last fall, but I know he tried very hard for us and there were no other reasonable options. (Unless we used a secondary lender with a much higher interest rate.)

 

[Sherilynn]

QUOTE (bizaro86 @ Apr 21 2010, 12:58 PM) I have a question about this regarding CMHC insurance. If I have a mortgage that I paid CMHC insurance on, that CMHC insurance covers the whole amortization of the mortgage. So I understand that I can "transfer" the mortgage to another institution on renewal and keep the benefits of the CMHC insurance. Is this correct?

Also, what happens on a property that met the CMHC guidelines on original financing, but no longer does? CMHC has already written the insurance, so it should still be valid for renewal, even at another institution?

Michael

Yes, you can transfer CMHC insurance. Your broker or banker can help you.

As far as it no longer qualifying, I doubt that they could cancel your insurance. We just transferred a Genworth-insured mortgage on a rental even though Genworth no longer insures rentals. (Although Genworth was agreeable, the only bank that would touch this was Scotiabank.)

However, if your LTV is too high, it may still be a problem. For instance, Scotia would allow a max LTV of 90%, even though the Genworth insurance was for 95% (originally our primary residence). All we had to do in this case was get another appraisal ($31k difference!).

Regards,
Sherilynn

 

[mihwalee]

What happens if your mortgage is underwater at renewal? Do the banks start doing re-assessments when they know the market has shifted down? I know one of my Edmonton properties is down from when we purchased - still 3+ years til renewal and put 30% down so no worries but just curious. If the Garth Turners of the world are eventually correct (what`s that saying - even a clock is right twice a day?) and there`s a protracted downturn in prices will mortgage renewers (especially the 0-5% down crowd) have to come up with cash $`s for the difference between assessed and mortgage value? Then there`s the wrench of change in mortgage rules - what if you qualified prior at 0-5% down/40yr but on renewal minimum down is 10% and max am 25yr and your dsr no longer qualifies? If you`ve been making payments no probs can the bank suddenly essentially force you to sell? Interesting hypothetical situations.

 

[RobMacdonald]

QUOTE (mihwalee @ Apr 28 2010, 10:31 AM) What happens if your mortgage is underwater at renewal? Do the banks start doing re-assessments when they know the market has shifted down? I know one of my Edmonton properties is down from when we purchased - still 3+ years til renewal and put 30% down so no worries but just curious. If the Garth Turners of the world are eventually correct (what`s that saying - even a clock is right twice a day?) and there`s a protracted downturn in prices will mortgage renewers (especially the 0-5% down crowd) have to come up with cash $`s for the difference between assessed and mortgage value? Then there`s the wrench of change in mortgage rules - what if you qualified prior at 0-5% down/40yr but on renewal minimum down is 10% and max am 25yr and your dsr no longer qualifies? If you`ve been making payments no probs can the bank suddenly essentially force you to sell? Interesting hypothetical situations.


As long as the mortgage payments are paid as agreed, the bank should not have any issues with offering the renewal. I have had a couple of banks not offer renewals on rental properties. But that was because they eliminated their rental property program and did not want to carry them in their portfolio.

 

[JKF]

QUOTE (RobMacdonald @ Apr 28 2010, 02:43 PM) <_<


As long as the mortgage payments are paid as agreed, the bank should not have any issues with offering the renewal. I have had a couple of banks not offer renewals on rental properties. But that was because they eliminated their rental property program and did not want to carry them in their portfolio.

Can we know which Banks Rob?

TKS

Francis

 

[Thomas Beyer]

QUOTE (mihwalee @ Apr 28 2010, 10:31 AM) .... what if you qualified prior at 0-5% down/40yr but on renewal minimum down is 10% and max am 25yr..
you are CMHC insured in that case .. and have a 35 year life remaining on the CMHC ticket .. take it to any bank and renew ..