Is your lender keeping money from you at mortgage renewal time?


For the first time since the early 1990’s the interest rates that banks base their fixed rate mortgage on, are higher than they were 5 years earlier.  In Canada – where four out of five mortgages are the 5-year fixed rate variety – most borrowers will now be facing higher mortgage rates at renewal time than they originally got.

Unless you’re at the tail end of a 25-year mortgage, you likely will not remember a time when your mortgage became more expensive as the time went on.  For some, it could mean serious financial pressure.  In a new survey carried out for a mortgage comparison site, 31% of mortgage holders said they could afford no more than a $100 increase to their monthly payments.  On a mortgage initially worth $400,000, it would take only a 0.6-percentage-point increase in rates to make that happen.

But the chances are good that your own lender will make things even worse at renewal time.  That’s because mortgage lenders tend to give higher rates to borrowers who are renewing, than to new customers, says the founder of

A great number of people don’t do any comparison shopping whatsoever and the banks take advantage of those people by offering higher rates at renewal.  That’s one of the ways lenders maximize profit.  There’s no reward for loyalty that you would expect, he says.

The new federally mandated mortgage ‘stress test’ complicates things.  Someone who changes lenders at renewal time, has to pass the test that is now mandatory on mortgages from federally regulated institutions like banks and credit unions.  But if you stick with your current lender, you don’t have to pass the test.  The stress test requires you to qualify at a rate that is two percentage points higher than the one you’re being offered, or the Bank of Canada’s posted rate (currently 5.34%), whichever is higher.

Many borrowers may be compelled to renew their mortgage with their current lender out of fear of having to re-qualify.  As many as 10 renewals could be rejected because of the stress test, they estimate.  If that happens, your odds of getting a good mortgage rate are practically nil, as no federally regulated bank or credit union can give you a mortgage.  You will have to move to alternative lenders that will almost certainly charge higher mortgage rates than banks.

So what do you do if you can’t afford a much larger mortgage payment?

Start by shopping around for better rates.  The suggestion is to start your shopping 120-days before renewal.

Switching lenders could help.  The major lenders typically offer a quarter percentage point discount on their usual mortgage rates to new customers.

Switch from a fixed rate to a variable rate.  If you have a fixed-rate mortgage, you can switch to a variable rate and save about a percentage point on interest.  While the discount lenders today are offering, rates at 3.69% or higher for a 5-year fixed rate mortgage, variable rate mortgages are available for as little as 2.95%.  Needless to say, there is risk involved because your mortgage rate will move in tandem with overall interest rates.  And as we are now in a rising interest rate environment, there’s a good chance that it will happen.

If your mortgage is up for renewal, don’t neglect to contact us to discuss your options, before signing with your existing lender.

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