The great renewal

If you have a mortgage, it’s likely a source of some financial stress—particularly if its term is expiring this year or next. Bank of Canada data shows that 60 per cent of mortgage holders are renewing this year and next with most holding five-year, fixed-rate terms set to increase with payments that could be 10 per cent higher or more than they were previously paying.

A recent TD survey has found that 22 per cent Manitoba mortgage holders are renewing next year, with 72 per cent expecting higher payments that will affect their living situation.

“That’s highest of all the markets,” says Crystal Leigh, associate vice-president at TD, specializing in mortgages, based in Halifax, noting the national average is 57 per cent.

“There were several options folks also indicated that they were exploring to manage their cash flow to adjust.”

Notably, many might seek to refinance at renewal—rolling credit card debt into their mortgage, payment, for example, she adds.

The survey findings also correspond with what a national debt counselling non-profit noted last year in its annual report. Credit Counselling Society’s study revealed at the time that 48 per cent of its clients are homeowners.

Rising mortgage costs continue to be a growing problem among the non-profit’s clients, who are often flirting with insolvency, says Mason Cox, director of counselling at Credit Counselling Society in Victoria.

“We have seen a dramatic increase in the last year,” he says, noting many clients are former first-time buyers who struggled from the get-go as they strove to gain a foothold in expensive markets in British Columbia and Ontario.

The challenges for first-time buyers have been less so in Manitoba where home prices, while growing quickly in recent years, are a far cry from markets like Victoria where the price—was about $1.2 million for the typical (benchmark) single-family home.

In Winnipeg, the benchmark is roughly $415,000.

Still, the struggle is indeed real for many renewing mortgage holders, especially those who may have compiled consumer (i.e. credit card) debt over the course of the term.

Local mortgage expert Aaron Brager has seen a number of clients renewing and looking to refinance at the same time.

His key piece of advice for those worried about affording their payments after renewal is to not necessarily take the first offer from their current lender.

Shop around, says mortgage specialist with Castle Mortgage Group in Winnipeg.

“If you’re simply renewing your mortgage, have taken on some extra debt, and are worried about qualifying at a new lender, don’t worry,” he says. ”You can qualify at the contract rate instead of the stress test, making it easier to qualify.”

The federal government stress test involves qualifying at 200 basis points higher than the offered rate in most cases. Until last fall, renewing mortgagees had to qualify at that rate when switching lenders.

Still, switching might come with additional costs, says Victor Tran, mortgage broker and mortgage expert with Rates.ca.

“If a client switches to another lender, they must requalify (meeting lender criteria) regardless of whether they renew with the mortgage as-is or refinance for additional funds and/or increase the amortization,” and this process will often involve legal and appraisal fees, he adds.

Yet the lending market is very competitive, Brager says.

“Registration, legal fees, and appraisal costs can often be covered by the new lender,” he says.

Overall, the goal for many refinancers is rolling existing, high-interest credit card debt into their mortgage at a lower rate and for a lower, consolidated debt payment.

Others simply seek to reduce the payment as much as possible.

“If you’re like many Canadians and your payment is going up at renewal, you might be able to increase your amortization back to 25 years without affecting your rate,” Brager says.

This can be done in some cases without requalifying and paying fees, says Tran, if you’ve paid down the mortgage principal faster than scheduled during the term.

“Lenders allow their clients to increase the amortization back to the original that was registered on title, minus time gone by.”

He cites the example of a five-year term with 25-year amortization where someone has paid bi-weekly accelerated over that timeframe and has 15 years of amortization left instead of 20 years. In that case, the amortization could be increased to the original 25 years, minus the five years that have gone by, he adds. In turn, the amortization would increase to 20 years effectively, which would reduce the monthly payment.

Although homeowners have a few paths to choose from, the TD survey found that 65 per cent have not sought advice for what is likely their largest, most valuable and costly asset: their home.

That’s truly an area where there is room for improvement, Leigh says.

“In absence of understanding where you sit, we found you’re more likely to feel stress and anxiety,” she says about findings from survey respondents.

“When you can clear out the unknown and understand your options, you can move to hopefulness and optimism.”

And hopefully, you can move toward better financial outcomes too.