Mortgage renewals coming up in 2023 will be a prominent factor in the market for 2023. The fact that interest rates have spiked significantly over the last year, could see plenty of difficult decisions for homeowners in the coming months.
A survey conducted in October last year, found that 53% of homeowners are feeling concerned about higher payments when their mortgages come up for renewal. Those aged between 18 and 54 were especially likely to be worried.
Fifty-two per cent (52%) of homeowners already have a plan in place for the eventuality of higher payments upon renewal. More than half said they don’t plan to change lenders and 9% were unaware that switching lenders could be done.
Shopping around is essential for mortgage holders facing renewal in 2023, with the potential to find a rate significantly lower than the one offered by the current lender.
What is the benefit to borrowers of shopping around upon mortgage renewal?
Previously, the differences in rate offered by lenders might have been negligible – around a quarter-point at most. In those cases, borrowers might have decided putting in the effort to reapply and qualify again wasn’t worth it.
Now though, a big discrepancy can be apparent between lenders, meaning it’s imperative for borrowers to do their due diligence in shopping around, or contacting a mortgage broker to find the best rate, to save as much as possible upon renewal.
Sure it can be a pain to go through the whole application process again, provide paperwork and credit checks and signed documents with a legal service provider to transfer the mortgage, but if you really think about it and add up all that time spent on doing that application, you’re saving thousands of dollars.
What impact does the stress test have when switching lenders upon renewal?
For younger homeowners, there may be an additional burden when contemplating changing lenders. The fact that they’re required to requalify again under the mortgage stress test when switching. The qualifying rate have ticked upwards over the last year as the Bank of Canada hiked its own benchmark lending rate.
Borrowers must show that they can afford interest rates equaling 5.25% or the contact rate plus two percentage points – whichever is higher. While the record-low rates that prevailed at the height of the COVID-19 pandemic meant they were typically qualifying at 5.25%, upward movement in rates during the past 12 months has seen the qualifying rate typically climb well above that lower level.
Contacting your mortgage broker when your mortgage is coming up for renewal, is imperative in this market.
Original article: www.mpamag.com
