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Early Mortgage Renewal

Jamie David

If you still have an outstanding balance on your mortgage at the end of your mortgage term, you will have to renew for another term. By law, your lender has to send you a renewal notice 21 days before your term is up, but most allow you to renew with them anytime in the final 120 days of your current mortgage term without having to pay a penalty to break your term early; this is known as an early mortgage renewal.

During the final 120 days of your term, most lenders will contact you with an early renewal offer. The offer will include a new mortgage rate (usually just 0.75% less than their posted rate) and term (typically the same length of the term you are currently in), as well as a letter you can sign to accept the offer and mail back. By signing the letter, you are accepting the early renewal offer and, therefore, your mortgage will be renewed with your current lender for another term.

If it seems all too convenient to sign your early renewal offer and send it back, that’s because it is – and that convenience comes at a price. By accepting your early renewal offer, you are going to end up paying a higher interest rate than what you could have gotten if you’d shopped around and switched to another lender.

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Should you accept your lender’s early renewal offer?

If you receive an early renewal offer from your lender, your decision of whether or not to accept it should be based on the interest rate that is being offered. Remember: It’s highly unlikely that the lender who offered you the best rate for your last mortgage term will be able to offer you the lowest mortgage rate that’s on the market today. Your best bet is to shop around with other lenders until you find the lowest rate.

Here’s one example of how shopping around for a better interest rate at mortgage renewal time can save you thousands of dollars in interest:

Let’s say you have a home valued at $350,000 with a $280,000 mortgage (with an amortization period of 25 years). Your 5-year fixed-rate term is up for renewal, and your lender is offering to renew you for another 5-year term at a fixed rate of 2.69%. If you accept this offer, you would pay $34,744 in interest over the 5-year term (monthly payments of $1,281).

After taking some time to shop around, however, you find a different lender who is willing to offer you a 5-year fixed rate of 2.34%. By accepting this offer, you would pay just $30,144 in interest over the 5-year term; that’s $4,600 less than you would have paid your existing lender over 5 years, had you decided to accept their early mortgage renewal offer. Your monthly payments also become $1,232. 

   $47,999 (interest paid at 3.69%)

$44,009 (interest paid at 3.39%)

= Interest savings by switching lenders: $3,990 


How to get the best mortgage rate at renewal time

If you want to get the best mortgage rate at renewal time, your best option is to switch providers. Once you’re within 120 days of your renewal date, start shopping around, because a new lender can hold a rate for you until your renewal date. You don’t want to switch before your current mortgage term is up, because you’d have to pay a pre-payment penalty to do so. But shop around in the last 4 months of your current term, so you can choose a new lender with a new rate, and get the paperwork done so you can be switched over on your renewal date.

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