During the beginning of the pandemic, interest rates were at all-time lows and many Canadian
homeowners took advantage of that to lock in low rates. Now, many of those who secured
favourable rates a few years ago are up for mortgage renewal and must brace for a rising rate
environment.
In December 2020, the 5-year fixed rate was at 1.39%, but now, due to inflation, the 5-year fixed
rate has soared to 5.49% in September 2023. In an effort to combat rising inflation, the Bank of
Canada has been steadily increasing its overnight lending rate since March 2022, interest rates
have increased ten times since then, however, inflation is still stubbornly high. If inflation doesn’t
drop to the Bank of Canada’s 2% target, there’s a good chance interest rates will continue to
rise.
So what do Canadian homeowners need to know to ensure their mortgage renewal goes smoothly and
serves their best interests? Use these tips from the experts at Zoocasa as a guide to help you
start the mortgage renewal process with confidence and secure a rate that meets your financial goals.
Be Proactive
The best way to prepare yourself for a mortgage renewal is to start the research process as
early as possible. Don’t wait until you receive a mortgage renewal reminder in the mail to start
looking into other options.
First, you should check the date of when your current mortgage ends, known as the maturity
date, to calculate how long you have, however, you can start negotiating and shopping around
for a lower rate 120 days before the maturity date. This will give you enough time to dig into the
specifics and find the best deal for you.
Fixed-rate vs. Variable-rate Mortgages
In Canada, there are two main types of mortgage rates – fixed-rate and variable-rate. Fixed-rate
mortgages have a set interest rate that remains the same throughout the entire term and are
generally considered safer. This means you won’t have to worry about fluctuating interest rates,
but you may end up paying more in the long term if interest rates do drop.
Variable-rate mortgages are less stable and fluctuate based on the Bank of Canada’s overnight
lending rates. This means the amount you pay towards interest can change, and sometimes this
may be in your favour if interest rates go down. You may also be able to switch from a variable
rate to a fixed rate if needed.
3-year vs. 5-year Fixed Mortgages
A longer mortgage term offers stability and may be a good option when it seems that interest
rates will continue to rise. A longer-term mortgage is also a good option if you plan to stay in the
same home for the next five years and want peace of mind.
On the other hand, if you anticipate a move coming up, a 3-year mortgage may be better for
you. Though there is less rate stability with a 3-year mortgage, there is a possibility of lower
rates and there’s more flexibility if you do need to break your mortgage.
