Congratulations! You’ve bought a home, had the mortgage terms accepted, and now you’re done… right? You won’t need to talk to your mortgage broker for another five years because that’s when the term of your initial mortgage is up for renewal.

Why would you spend time doing something like an annual review for a plan you’re “stuck” in for the next five years? Too many people think this way. The idea of reviewing a plan when your payments won’t change can make mortgage holders feel like it’s a waste of time.

But this couldn’t be further from the truth. Taking time to review how you’re managing one of your biggest financial commitments each year makes a lot of sense when you look at it that way.

So, let’s take a couple of minutes to explore why answering your mortgage broker’s call for a quick review can actually help improve your financial situation.

In this article: 

• About That Interest Rate
• Looking to Access Some Home Equity?
• Making Sure You Understand Your Current Mortgage
• Let’s Make that Next Renewal Go Smoothly
• Having a Plan Helps
• Conclusion

About That Interest Rate

We’ve been through a lot in recent years. Starting with the first decade of the 2000s, you see a period of time when interest rates were at very low levels for years. I remember having conversations with clients and talking about how “rates have to go up” for years, and then they didn’t. We had never experienced such a prolonged period where interest rates remained so low for so long.

Then the COVID-19 pandemic hit, and rates fell even further.

Now, this isn’t the place to get into fiscal policy or the logic the Bank of Canada uses to set its prime lending rate. But as we all know, to battle the inflation that followed the pandemic, interest rates rose quickly to levels last seen almost 20 years ago.

If you were one of the many people forced to renew their mortgage during that time frame, it would definitely make sense to take advantage of annual reviews, particularly now that interest rates have begun to decrease.

Your mortgage broker can review what you are currently paying, what the market offers today, and what it would cost you to make a change if it makes sense.

Advantage #1 of an Annual Mortgage Review – You can make sure that if there’s an opportunity to save on your monthly payments, you’re aware of it and able to make an informed decision about whether to take advantage of it.

Looking to Access Some Home Equity?

Many homeowners have a large portion of their net worth tied up in their homes as equity. The upside of real estate increasing in value is that many Canadians now have higher net worths than they did in the past. The downside of home equity is that it is not liquid. So, while your balance sheet may look strong, you might still struggle with daily living expenses or finding ways to fund a large expense, such as a home renovation.

Accessing home equity can really help with two common challenges that Canadians face:

• You can use the money to make a large project, like a home renovation, possible.
• You can consolidate debts to improve your cash flow and make daily life easier.

Advantage #2 of an Annual Mortgage Review – If you are in a situation where you could really use some cash to fund a large project or pay off debts that are hurting your monthly cash flow, meeting with your mortgage broker can help you understand the options available to you. They can also show you how much it might cost to make a move and how much you could save in the long run.

Making Sure You Understand Your Current Mortgage

I run into this all the time. When I’m sitting in a meeting with a client and explaining all the bells and whistles attached to their mortgage, they nod along and everything makes sense. While we’re sitting together, it’s all clear.

After the meeting, though, I know questions start to come up. Things like:
“What did he say about prepayment options?”
“Can we make a lump sum payment?”
“What are the benefits of doing either of these?”

It makes sense that everything seems clear while the options are being explained. But the reality is that when you’re applying for a mortgage, it’s often during the stressful process of buying a new home. And you know what’s incredibly stressful? Buying a new home.

Information is coming at you from all directions, and not remembering every detail about your mortgage is perfectly reasonable.

As a side note, another aspect you may not fully understand is how interest is charged on your mortgage. That’s a topic for another day, but here’s one thing to keep in mind: making extra payments, when your mortgage allows it, can save you tens of thousands of dollars over the life of your loan.

Advantage #3 of an Annual Mortgage Review – Making sure you understand your prepayment options and how taking advantage of them can save you money will help you determine how best to allocate your household cash flow.

Let’s Make that Next Renewal Go Smoothly

Granted, this is one of the times when people do tend to think that reviewing their mortgage is a good idea. When you have a renewal approaching, it’s always wise to review your options. Taking the time to do so allows your broker the opportunity to help in a few key ways:

• Shop around with different lenders to ensure you’re getting the best rate
• Work with you to make sure you’re in the right program (for example, fixed versus variable), especially when changes in interest rates are expected

Many people assume they’ll simply continue with their current lender. While that may end up being the best path for you, wouldn’t it feel better to take the time to confirm that the offer you’ve received is competitive with what the broader market is offering?

Advantage #4 of an Annual Mortgage Review – Making sure your broker is familiar with your situation as life changes will make it much easier to ensure that your next renewal goes as smoothly as possible.

Having a Plan Helps

As I mentioned earlier, for many Canadians, the homes they own represent both their largest investment and their largest debt. We also know that life throws everyone curveballs from time to time.

The final advantage I’ll mention here is that reviewing your mortgage with your broker regularly gives you the opportunity to share any significant changes that may affect your mortgage in the future.

Being able to plan as life evolves can greatly reduce your stress. So even if your mortgage isn’t up for renewal for a couple of years, if you’ve experienced a major life change, wouldn’t it feel better to have already talked it through with your broker and know that a plan is in place? That’s a lot better than white-knuckling it until the renewal date, unsure how the change might impact your mortgage.

When it comes to my biggest asset, I sleep better at night knowing I have a plan that reflects where I stand today.

Advantage #5 of an Annual Mortgage Review  – Less stress. Knowing that your broker understands what’s going on in your life, and that you have a plan to handle any changes in circumstances, can really help you sleep better at night.

Conclusion

I guess there’s one more advantage to having an annual review of your mortgage: you get to spend some time catching up with the team at Strata Mortgages, which is always fun.

But that joyful reunion aside, you owe it to yourself to make sure you review your mortgage more often than just when it comes up for renewal.

Taking the time to discuss your options when interest rates change, making sure you understand all the fine print in your contract, and simply having a plan in place to address your changing needs can make life significantly less stressful. You might even find yourself wondering why you didn’t do it sooner.