What You Need To Know About Mortgage Renewal Penalties

Is your current mortgage term going to expire, and you haven’t completed the loan repayment? Then it would help if you renewed your mortgage for the balance that’s left.

Mortgage Renewal

A mortgage puts you in a contractual agreement with a lender for a set period. This period is called the mortgage term, and it ranges from a few months to 5 years or more. At the end of the mortgage term, you would have to renew your mortgage, except you have paid the balance in full. But mortgages usually require several terms to pay in full. 

This makes renewal inevitable for many debtors/homeowners.

Mortgage renewal is an integral part of the mortgage process for homeowners. Some people see it as a routine activity that they should keep doing over and over again. But some other people want to sort it out as quickly as possible. 

So, which approach is better, early renewals or not?

In mortgaging, the interest rate you are being charged stays locked in for the period of that mortgage. But when the mortgage is reaching its renewal period, your lender may offer you a new and attractive renewal term and interest rate. You would be eligible for this treatment provided you have been paying your monthly mortgage as of when due. 

Generally, mortgage renewal allows the customer to negotiate their existing interest rates, payment terms, mortgage terms, and so on.

However, it could be of great benefit to you if you shop around for a new mortgage. You could benefit from renegotiating the term of your mortgage with your current lender. You may find a new lender to switch your mortgage to who may offer you better internet rates and terms of conditions.

Can Homeowners Save Money With Early Renewals?

Here, we will talk about early renewals and the possible benefits and costs of renewing your mortgage early. 

When should you renew your mortgage?

You will need to renew your mortgage when it ends while you still owe on the mortgage. Your lender will notify you about your mortgage renewal 21 days or more before the end of the mortgage term. This gives you enough time to decide if you want to continue with the same lender or switch to a new lender. You may want to switch to a new lender for higher rates and terms, but you only have 30 days before your renewal date to make the decision.

Should you renew your mortgage early?

Some lenders allow their customers to renew their mortgage early without penalty; this is usually 121 to 180 days before the renewal date. 

If you are offered an early renewal, you should consider if it’s good for you. An early mortgage renewal may not be the best choice for some borrowers. 

Many lenders will offer their customers early renewal on some occasions since their rates are only reserved for 120 days ahead of the disbursement date.  

This makes it hard for borrowers to look at other mortgage options if they are 180 days before their renewal date. Switching to a new lender will trigger a penalty as a result.

An early mortgage renewal is only beneficial for borrowers if they are in an environment where the rates increase very often. This is because the lender wants to renew the customer’s mortgage before the rate increases. In this case, the mortgage is renewed at the current rate lower than what it would likely be in a rate-increasing environment. 

However, the borrower should see what other lenders are offering before renewing their mortgage with their current lender. 

The significant drawbacks of early mortgage renewal

When you lock in a new mortgage rate, it may come at a cost if the rate ends up dropping even by a small percentage from what you locked.

For example, the new rate you locked through an early renewal may cost you an additional 0.10 to 0.30 percentage. 

You may also face a penalty for breaking your mortgage term early as a result of an early renewal. The penalty will have you get three months of interest. 

When deciding on mortgage renewal, it is best to consider the cost and benefits to see if it’s a suitable option for you. Also, weigh different mortgage options against what you already have. 

Sometimes a lender may decide not to renew your mortgage if they notice a significant drop in your credit rating. At this point, it may even become difficult for you to find another lender, and your current lender doesn’t consider you a worthy borrower.  

You may also experience difficulty with your mortgage renewal if there’s been a change in your financial situation. That is if your financial situation had changed from when you got the mortgage initially compared to what it is at the point of renewal. 

Your mortgage renewal will be affected if you or your partner has started a business or receives employment insurance. When originally you got your mortgage as salary earners. 

Try to keep your financial status stabilized ahead of your renewal period. 

What is a mortgage prepayment penalty?

This is the fee a lender charges borrowers for:

  • paying more than the required amount towards their mortgage.
  • Breaking their mortgage contract.
  • Transferring their mortgage to another lender before the end of their mortgage term.
  • completing the repayment of their mortgage before the end of the mortgage term.

A Prepayment penalty may also be called a prepayment charge or breakage cost, and It usually costs several thousand dollars.

If you want to get the best result out of your mortgage, then you should consult a trusted mortgage broker. 

A mortgage broker can help you by finding you the best mortgage products to match your financial strength, goals and lifestyle. 

Read more here to find help with any mortgage problem you may have. 

Mortgage Maestro typically offers their customers options and recommends a mortgage solution that matches the customer’s financial needs.

Mortgage renewal at Mortgage Maestro is usually a swift process. Their team of experienced and well-trained brokers is always on deck to render the best services for you.


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