Posted On Jan 15, 2024

(First published December 15, 2023)

Renewing your mortgage is normally a significant financial decision. With interest rates likely a lot higher than your current mortgage rate, if you’re facing a renewal in 2024 like many Canadians you are probably concerned and have lots of questions. In this blog, I'll discuss some of the best strategies to employ in this rate environment.

Start Early

Planning is crucial when it comes to mortgage renewals, especially in a market where rates are likely to move.  No need to wait for your renewal notice to begin thinking about the best move for your financial picture today (and what you expect it to be tomorrow).  Most lenders prompt you to renew your mortgage up to six months before your current term expires.  But actually renewing with your current lender, especially so far in advance, is likely to be a costly decision for you (and one that likely benefits the lender more than it benefits you because you may be locking in for longer than you should).  By starting early, and with the assistance of a knowledgeable Mortgage Agent, you can gather information, compare offers, and make an informed decision for now and down the road.

Consult a Mortgage Agent

A Mortgage Agent can be your best ally when navigating a mortgage renewal, as they have access to multiple lenders and can help you find the best possible mortgage rates and terms based on your financial situation today and for what you might need in the future. Mortgage Agents can offer valuable advice on timing your renewal and helping you benefit from potential rate decreases later in the year.

Stay Informed

There are signs in the market today that suggest there may be a reduction in rates later in 2024 - inflation and GDP growth have slowed and the Bank of Canada has also held steady on their policy interest rates since July’23 (after steadily increasing them since March’22).  While no one can predict future rates with certainty, tracking market indicators such as these can give you a sense of the direction in which rates may be heading.

Learn from Variable Rate Experiences

As interest rates fell to historic lows early in the pandemic, variable rate mortgages made it possible to buy into an overheated housing market. Unfortunately many variable rate mortgage holders, especially those who purchased directly from their Bank, were not properly matched to the product as far as risk tolerance and simply didn’t understand it.  Many did not watch for the signs themselves or have someone from the Bank watching out for them - so they missed opportunities to lock into fixed rates during the gradual rate increases since March’22.   These borrowers have experienced payment shock that has created a stressful situation - a situation that could have been avoided or mitigated by working with a Mortgage Agent who would guide and coach them on their initial transaction and over the lifetime of their mortgage.

Consider a Shorter-Term Mortgage

If you believe that interest rates will decrease later in the year (which is the talk amongst experts), you might consider opting for a shorter-term mortgage (1, 2 or 3 year term) during your renewal. Short-term mortgages typically have lower interest rates compared to longer-term options - however, that is not the case today (which is another indicator that the markets believe that rates will decrease in the future).  Even though shorter-terms are priced higher on average today than longer terms (like the 5 year term), you will benefit and save at your next renewal if rates decrease as predicted. On the other hand, if you lock into a 5 year term, you are essentially locking into today’s peak rates (with no option or opportunity to take advantage of any rate decrease). 

Consider a Variable Rate Mortgage

While a variable rate mortgage has become vilified recently as the cause of payment shock for some, you should not ignore this option - in fact variable may be the way to go given current and predicted market conditions now. If rates decrease, as many experts believe, each cut in the Bank of Canada’s policy rate will reduce your cost of borrowing.  Caveat:   In choosing this option it is important to keep an eye on rates (or work with someone who will keep an eye on them for you) - because if rates actually begin to increase (unexpectedly) again, you will want to lock in.

Hedge your bets with a Hybrid strategy

While many indicators suggest rates will decrease starting some time this year, you may not be willing to take a definitive position.  Consider, then, a hybrid strategy by combining elements of both fixed and variable rates. This strategy allows you to partially benefit from rate decreases while offering some protection if rates increase. Many banks offer a Combo Mortgage, combining a Home Equity Line of Credit (HELOC) with a fixed-term product, to execute this strategy. The benefit is that the portion held in the HELOC is open and can be switched to a fixed-term mortgage at any time.

Stay Flexible 

In a high-rate environment,  it's important to stay flexible (even if you have chosen a variable or short term mortgage in anticipation of rates decreasing).  In the event rates don’t actually decrease, you will want the flexibility to do things like lock in, make pre-payments. etc.  A Mortgage Agent is equipped to assess all the available mortgage products on the market to make sure you are getting the best option for your today and your tomorrow

Conclusion

Renewing a mortgage in a high-rate environment can be challenging, but with the right strategies and a well-thought-out plan, you can still secure favorable terms for your mortgage in Canada in 2024. Whether you opt for a shorter-term mortgage or a variable mortgage, consult a Mortgage Agent.  Remember, while rates may be high now, the mortgage market changes rapidly, so stay vigilant and adaptable as you approach your renewal date with the guidance of your Mortgage Agent.

Let's work together in 2024 to navigate your renewal and get you a Better Mortgage by Dom!  

 

 

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