A mortgage renewal occurs when you've come to the end of your current mortgage term (contract) and you sign another contract for a new term (eg. 1-5 years).
Renewal offer is the remaining balance at the remaining amortization. You don't want to sign your renewal agreement so soon, you want to make sure you review your options!
Why might you have Renewal Anxiety?
Well rates have gone up.. way up?
Typical 5 year fixed rate in 2020: 2.19%
Typical 5 year fixed rate in 2024: 5.09%
That is more than double the rate!! Will your monthly payment double?
Let's see...
Impact of higher rates
New Mortgage (2020)
Amount borrowed: $300,000
Rate (fixed): 2.19%
Term: 5 years
Amortization: 25 years
Monthly payment: $1298.03
Balance at the end of term: $252,310.60
At the end of the term (2025)
Balance: $252,310.60
Rate for new term (fixed): 5.09%
Term: 5 years
Amortization: 20 years
Monthly payment: $1670.28
Balance at the end of term: $210,703.63
While the rate for the new term is more than double what the old rate was but the monthly payment is 28.7% higher.
A big increase but not double!
Opportunities at renewal - Yes you have options!
Upgrade to a better more flexible mortgage product (payment privileges, penalty, portability)
Pull amortization back to 25 or 30 years to make payment affordable to stay in your home
Get funds for home improvements or large purchases
Consolidate debt
Investments
What if would like extra funds during my renewal?
Let's take a look
Renewing Mortgage
Balance Remaining: $215,000
Rate (fixed): 5.09%
Term: 5 years
Amortization: 20 years
Monthly payment: $1423.29
New Mortgage plus $25,000
New Balance: $240,000
Rate for the new term (fixed): 5.59
Term: 5 years
Amortization: 30 years
Monthly payment: $1366.61
Monthly payment at 25 year amortization: $1477.54
While you would be increasing the amortization, the monthly payment went down! If cash flow is a concern then this could be an option to consider!
For 25k extra cash = $54.25/month more on a 25 year amortization
For 25k extra cash on 30 year amount = $56.68 LESS per month
If you have a 25K debt that needs to be paid = 500-1000/month positive cash flow and interest savings.
If you have questions about your options for mortgage renewal, please reach out to your advisor!
Comments