Mortgages are a huge industry in Canada. Just in Ontario, consumers owe about $1.4 trillion in mortgage loans to various lenders. Mortgage lenders are predominantly banks (74%), credit unions (13%), as well as a few other unique lenders like mortgage loan companies and life insurance companies.
When you purchase a mortgage, you’ll decide on an amortization period and mortgage term. The amortization period is the amount of time it will take you to pay off your mortgage, and can range between 20-25 years. The mortgage term is the length of time that your contract is in effect, outlining your interest rate and contract outlines. Mortgage terms can range between a few months to 5 years. For example, many mortgage holders opt for a 5-year term with a fixed interest rate.
Unless you pay off your entire mortgage in the length of your first mortgage term, you’ll need to renew it every few years to pay off the balance – this is called mortgage renewal. It’s a difficult process with lots of technical jargon, requiring many documents and fees, as well as a strong understanding of all the complexities of renewing a mortgage. The main concern, however, is the new interest rate, which can go up depending on your financial situation and your lender. If your credit is less than stellar, you need to be on the lookout for misleading mortgage sales tactics and false renewal promises.
Check out how lender advertisements mislead Canadians.
When mortgage holders are looking to refinance their homes, some brokers and lenders can be predatory. They might be counting on the borrower to be in a tough financial spot, and open to switching most of their contract terms, and their lender entirely.
The most common form of mortgage renewal fraud is the “bait and switch.” Also described as a teaser, mortgage lenders will “bait” borrowers with attractive loan terms and interest rates, and “switch” them back to a more expensive rate and product at the last minute, after the borrower expresses interest. Lenders “bait” the borrowers knowing full well that once it comes to qualifying, the borrower will not be able to secure these terms and rates.
Unfortunately, this constitutes false advertising, and borrowers shouldn’t sign anything unless they make sure the contract terms match what they were told by the lender.
Find out if you should work with a bank or mortgage broker.
There are numerous signs that can help you spot misleading mortgage renewal claims. Here are a few tips to help you when renewing your mortgage:
Remember, while banks might not have to disclose the way they pay their representatives, mortgage brokers are legally obligated. So, if a broker makes a hefty commission off your contract, you know they have an extra incentive to give you a higher rate.
Luckily, there are plenty of preventative measures you can take to avoid mortgage renewal bait and switch.
Canada has hundreds of qualified and NHA approved mortgage lenders, so don’t feel like you have to stick with your original lender. Start looking for other mortgage products a few months before your term ends, and compare them to your current term contract. If you are noticing many more attractive contracts, you can use this as a negotiating tool with your current lender.
At the time of renewal, it’s important to talk to your current lender to renegotiate terms. If you don’t, there’s a chance your mortgage will renew automatically and you can miss out on a potential discounted interest rate.
If you decide to change mortgage lenders, make sure you understand the full costs of doing so. A new lender will need a new mortgage application from you, and they might have different criteria for approval than your previous lender. You may also be subject to additional fees and premiums when you switch, so ensure you consider all cost factors before making a decision.
Locking your loan entails locking your interest rate, and other terms if you wish. Borrowers might consider locking their interest rate to avoid any increase in interest with the market. It’s possible that a lender will charge an extra fee or try to secure a higher rate if a borrower wants to lock their loan.
If a lender promises you an attractive interest rate and loan term, do not assume it’s real until you see it in writing. Some lenders are all talk, and when it comes down to the contract, you might notice the numbers will change. Make sure you have everything written down before you assume you have a great new mortgage rate and read all of the fine print. Finally, never give a lender any money upfront before signing a loan contract.
Like all industries, the mortgage industry has good and bad apples. There will always be individuals and companies creeping about, and you need to be on the lookout. Fortunately, mortgage renewal doesn’t have to be a scary or uncertain process. Take extra time to review your contract and shop around, and don’t be afraid to negotiate with your lender. Be wary of anything that’s too good to be true, and always feel empowered to ask your lender to disclose any information you need to feel comfortable about signing a new mortgage term contract.
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Chrissy is a Toronto-based communications advisor. With an English degree from the University of Toronto and editing courses under her belt from Ryerson University, she has continued her lifelong passion for writing and editing. In addition to working for Loans Canada on a variety of financial topics, Chrissy has a few years of resume writing and editing under her belt, and takes great pleasure in helping people find work that fits with their experience and passions. When she isn't working, you can find her practicing yoga, hanging out with her dog, reading up on financial and real estate news, or planning her next trip abroad.
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