Mortgage Renewals in 2018

Did you know that at least one of the major chartered banks is now doing appraisals on their mortgage renewals??

This was recently reported by Jim Tourloukis, CEO of Advent Mortgages, and one of the nation’s top mortgage brokers.

By ordering an appraisal around the time of mortgage renewal, your lender will know just how much equity you have in your home, and how ‘safe’ their investment is.

This is the sort of thing we can expect more of in a weakening real estate market. Not that prices have fallen off a cliff or anything, but as a generality, prices overall are down from a year ago.

Bucking the trend — markets like Ottawa, Montreal and Belleville are pretty hot right now. And if you are shopping for a condo or townhouse in the GTA, you won’t find many bargains out there either.

Mortgage lenders want to understand the quality of their loan portfolios. Higher risk mortgages (for example, those with little equity or where the borrowers credit history is poor) are possibly going to be offered much higher mortgage renewal rates. Or… told to take their business elsewhere.

In late March 2018 I sounded an alarm bell about mortgage renewals here in Canada.

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Related BLOG POST: MORE BAD NEWS FOR MORTGAGE RENEWALS

I said mortgage renewals were no longer routine or straightforward. This is a result of an international accounting standard called IFSR 9 which EVERYONE must comply with by year end 2018.

Here is what I have personally witnessed in our client base in recent weeks:
  • Mortgage in Richmond Hill for $588,000 coming up for renewal. The lender ordered an appraisal (which clients paid for) and the clients were told their new mortgage would be for only $546,000. The property appraised for $790,000.

Meaning they had to come up with $42,000 just to stay with this lender. Not many people have that kind of money lying around!

  • $290,000 mortgage in Manotick (a suburb of Ottawa). These clients were told their lender would not renew and they should take their business elsewhere. The property appraised for $415,000.
  • $275,000 mortgage in Hamilton told their renewing mortgage rate would be 7.99% (more than double the current rate). The property is worth over $600,000.
Here is what we know is happening out there:
  • Some lenders now require an appraisal prior to renewing the mortgage
  • Some lenders are pulling the borrowers’ current credit history prior to renewing the mortgage
  • At least one lender is asking their renewing mortgage clients to verify their employment and income

The mortgage renewal process is starting to resemble the initial mortgage application process at the time of purchase.

Lenders are assessing your credit history, your income and employment, the quality and value of your property. And they will price your mortgage renewal accordingly.

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What does this mean for you?
  • Talk to a mortgage broker anytime in the year leading up to your renewal date. Have a complete check up on all critical components and get in front of any issues.
  • And if all looks good, you might consider even switching lenders prior to your maturity date if you think rates will continue to rise between now and then. At the very least, lock in current rates for the next four months, and you can re-evaluate a bit later on.
Above all, keep your house in order! Make sure your credit history is accurate and clean, try to stay employed and try not to live in an area where home values are plummeting!

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