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3 things to consider before renewing your mortgage

April 1, 2022

When talk turns to mortgages, many people hope to find “the deal of a lifetime.” Whether you’re looking for the best rate, the longest term or the smallest payment, the best renewal strategy for you may not be the same as for your neighbour. Here’s why.

Renewing your mortgage can be a great opportunity to reorganize your finances around your future plans. Here are 3 things to consider in negotiating a renewal that meets your needs.

1. Your plans

What term is best: 1 year, 3 years, 5 years or 7 years? To get a good handle on your needs, have a clear idea of where your life is going and the changes that may lie ahead.

Thinking of moving?

Someone who plans to move within the next 6 to 18 months might instinctively look to an open mortgage with no penalty at closure and a slightly higher interest rate. But a closed mortgage might actually be more appropriate, for them, depending on interest charges and the balance remaining on their loan

Patrick Champagne,

Home Financing Product Officer at Desjardins Group.

Planning to expand or renovate?

If you’re thinking of renovating, you may need to get financing or refinance your mortgage.

Plan now

Versatile Line of Credit

Even if your project is 1 or 2 years away, why not plan ahead to get the best financing solution when renewing your mortgage? It could be a smart way to finance your renovations. Once you’ve submitted your initial renewal application, you’ll be able to access the funds available on your line of credit whenever you want on an as-needed basis.

RenoAssistance

Are you brimming with ideas and looking for renovation professionals to assist you?

Go to RenoAssistance to find trusted contractors.

Submit your project, compare quotes and choose from our verified contractors in just a few steps. That way you can focus on other things, knowing that your project is in good hands.

Looking for flexibility so you can prepay without penalty?

How do you choose between an open or closed mortgage? It all depends on your financial capacity and short-term plans.

  • Closed mortgage: With this option you can prepay up to 15% of the original loan amount once a year without penalty and increase your regular payments up to 100%.
  • Open mortgage: There’s no prepayment limit with this option, but the interest rate may be higher than on a closed mortgage, and other conditions will need to be met.

Comparing your mortgage rate to the returns and tax benefits you get with certain investments (such as RRSPs) can help you determine the smartest way to spend any surplus cash you may have on hand. An advisor will be happy to assist you.

2. Your financial commitments

To find out how much financial leeway you have, calculate your monthly payments for:

  • Your vehicle
  • The minimum monthly amount payable on your credit cards and lines of credit
  • Your personal loans (for example, student loans)
  • Your HBP repayment
  • Your other payments (child support or other)

Tip: We recommend spending no more than 32% of your gross household income on housing.

We also recommend limiting total debt payments to a maximum of 40%, including your mortgage payment and other financial commitments.

Worried about having to deal with increases in your payments?

Whether you choose a fixed or variable rate mortgage, your payments will be constant.

A fixed rate, by definition, remains the same throughout the term of the agreement.

In contrast, with variable rate, the portion of the payment applied to the principal varies based on rate fluctuations. The variable rate fluctuates with the Desjardins prime rate. Historically, variable rate mortgages have often been a better long-term option than fixed rate contracts of 4 or 5 years in terms of interest charges and principal repayment.

You share mortgage payments but don’t have the same financial flexibility as your co-borrower?

Combining fixed and variable rates in a hybrid mortgage lets you divide your loan amount into 2 or 3 loan tranches. You can also customize your payments according to your preferences with respect to term length, amortization, frequency of payment, etc.

3. The state of the housing market

Homeowners and home buyers will need to keep a close eye on the housing market. The COVID-19 pandemic has increased short-term economic uncertainty. Interest rates can be expected to climb soon after 2 years at rock bottom. The speed of the increase also bears watching.

This is the third factor to consider when renewing a mortgage, as interest rates vary with the country’s economic situation. Interest rates are currently low, but the Bank of Canada has plans to increase them in early 2022.

It’s important to know all the options available to you. Here are a few different possibilities to explore and consider.

Plus: Provide peace-of-mind coverage

Loan insurance1 can help you meet your financial obligations in case the unexpected happens

When renewing your mortgage, it’s a good time to take out loan insurance if you aren’t already covered. It’s simple! Just talk to an advisor or sign up online. You’ll get life and disability coverage. If you pass away while you’re covered, your life insurance pays off the insured balance of your loan so your loved ones don’t have to. If you become totally disabled due to an accident or illness, your disability insurance will cover your regular loan payments based on the percentage you’ve selected. You’ll be able to focus on your recovery.

Protect your assets with home insurance

Contact your insurer when it’s time to renew your mortgage. They’ll make sure you have the most up-to-date information and that your coverage still meets your needs.

What if you increase your loan amount?

Your insurer will make sure that your policy still covers the replacement cost of your property. They’ll update your coverage to reflect your new needs.

If you have questions, your advisor will help walk you through the renewal process and suggest different options based on your financial situation. Is your mortgage nearing maturity? Renewing your mortgage online just got easier! Go to the My First Home section on AccèsD. You have up to 120 days before your maturity date to renew without penalty.


DESJARDINS INSURANCE refers to Desjardins Financial Security Life Assurance Company. DESJARDINS, DESJARDINS INSURANCE and related trademarks are trademarks of the Fédération des caisses Desjardins du Québec used under licence.