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I need advice on mortgage renewals. I have a mortgage with twenty year period. I have been paying it for almost five years now. I recently came to know that there is a mortgage renewal process every five of the period. I read more about this and found out that I can renegotiate my terms during this process.

But still, I don't know more about this. And I have some doubts about this? Who do I have to approach to do mortgage renewal?. Will my current mortgage broker be able to do this?. I have found a mortgage specialist in Edmonton who claims to be able to do this here. Would any given mortgage specialist be able to help me? Also, will I be able to make a significant change in the terms by this?. Please advise. Any help on this would be appreciated.

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  • One word of caution: The person you are talking to might be a scammer who is trying to trick you into sending your mortgage payments elsewhere. It may be 100% legitimate, but be sure to confirm any change of terms with the lender by calling someone at a phone number that you personally know belongs to that lender. There are many sad stories of people who have lost their homes to scams of this type. For example, this sad story. – David Schwartz Aug 4 '17 at 4:41
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    Please don't keep including a link to a specific service. It's not needed for the question and it gives the impression you're trying to spam: money.stackexchange.com/help/promotion – GS - Apologise to Monica♦ Aug 17 '17 at 12:42
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Yes, in Canada there are at least two time periods associated with your mortgage:

  • the amortization, typically 25 years
  • the time period for which your interest rate and amortization are established, typically 6 months to 5 years, called the term.

Towards the end of the term, someone from the lender will send you an offer to renew. It will typically have a different interest rate and a small renewal charge for the paperwork. I stopped paying the renewal charges (say, $80) decades ago by simply saying that I would love to do the 6 month variable, but I wasn't happy paying $80 every 6 months, when to my surprise the bank person crossed out the $80 on the spot. So I always ask for that. And generally you can say that the interest rate they are offering you is not what you were looking for, and they might come down a bit. You can also change your amortization if you are able to afford a shorter one because you've had some raises, or switch to biweekly payments, etc.

If you really don't like what they're offering you, you can go find a better rate and terms (often through a broker.) The new people will lend you the amount you're projected to owe to the old people, but they won't give it to you, they'll give it to the old people. In this way your debt is transferred. You'll have to do some paperwork such as adding the new people as named insureds on your house insurance, and possibly something involving your property taxes. As a result you might not switch lenders over a very small rate difference.

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  • It sounds like you are saying you can possibly negotiate the renewal charge, and also the interest rate, and then you can consider shortening the term too. Isn't the only advantage of shortening the term to get a better rate? (Since I assume you can always pay more if you want to and effectively shorten the term "manually".) I ask because it almost sounds like you can negotiate the rate, and then possibly shorten the term which would lower the rate even more? – TTT Aug 3 '17 at 18:30
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    term is how long until you renegotiate. The amortization length you could change, and there is a HUGE advantage which has nothing to do with the rate they owe you. You borrow the money for 20 years instead of 25, you pay a lot less interest. I don't know why you think shortening the term lowers the rate. – Kate Gregory Aug 3 '17 at 18:37
  • If you truly mean term, to oversimplify, if rates might go up, if you want to lock a rate for 5 years you can't lock at as low a rate as you can for 6 months. If rates might go down it's the other way around. Rates have been rock bottom for 7 years so people forget they can go up - and they can go down. Back in the day, if you would agree to pay 7% or 8% for 5 years the banks would adore you. I had friends with a 21% mortgage! They cashed in Savings Bonds paying 20% so as to reduce the principal on the mortgage. – Kate Gregory Aug 3 '17 at 18:39
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    I have never experienced a rate change when asking for a different amortization. I had a 5 year am once just before we moved to a much bigger (and closer to town) house. (No regrets, that second house made more than we did while we lived in it.) And my daughter went with 30 on a recent purchase, which they will drop in a few years when they're making more. I guess because in the States you don't have this idea of a term that is less than the am, choosing a shorter am is essentially choosing a shorter term. But here it's different. – Kate Gregory Aug 3 '17 at 19:27
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    @TTT It is important to note that the reason for shorter amortization periods having a lower interest rate in the US, is (to my understanding) because the amortization period includes locking-in the interest rate. So in Canada, your rate is only locked in for the 'term', and therefore the bank holds no interest rate risk for the amortization period beyond the 'term'. – Grade 'Eh' Bacon Aug 21 '17 at 19:44
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Personally, I have not heard of this, and I found this site helpful. Essentially, either the mortgage holder or homeowner could choose to not renew a mortgage after a short period of time in comparison to the mortgage term. If either chooses not to renew the full amount owed is due.

That is decent general information, but you probably need more information about your specific situation. For this, I can only recommend talking to your bank, fellow homeowners, and shopping around with other banks to see what is available to you.

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    Canada doesn't seem to have full term 20-30 year mortgages. They refresh every 5 years, max. Or so I was told by a Canadian friend. – JTP - Apologise to Monica♦ Aug 3 '17 at 12:57
  • It is kind of crazy. – Pete B. Aug 3 '17 at 13:16
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    We really need a Canadian member to answer. – JTP - Apologise to Monica♦ Aug 3 '17 at 13:18
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    @JoeTaxpayer 5 years would typically be the maximum; mortgage terms in Canada can be shorter than that length, depending on how long the rate is locked in for [obviously locking in for a longer period requires you to pay a higher interest rate, as it carries less risk to you than locking in for a short period]. – Grade 'Eh' Bacon Aug 3 '17 at 14:50
  • Longest I was offered was a 6 year term. I settled on a 4-year term. PS- I'm a Canadian – Canadian Luke Aug 3 '17 at 16:53
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The mortgage being discussed here is what is known (or used to be known once upon a time) in the US as an Adjustable Rate Mortgage (ARM) where the mortgage duration was for a long period (25 years for the OP) but the lender had the right to adjust the interest rate once every so many months (six or twelve months) or years (once every two years or three years etc of five years as in this case). Such an adjustment had the effect of changing the monthly payment, and the borrower had the right to refinance the mortgage with a different lender if a lower interest rate was available from the other lender. Of course, the borrower also had to pay the closing costs as well as points (if any) on the new mortgage, and unless the original lender was offering incredibly bad rates for the adjustment compared to the interest rates for new mortgages being offered by everyone else, refinancing often worked out to be the same, or slightly worse, than staying with the original lender. ARM contracts had rules regarding how much the interest rate could change with each adjustment, and these depended on how frequently the rate could be adjusted. Typically, ARMs had lower initial interest rates than conventional fixed-rate mortgages so that people could "afford" more expensive houses with ARMs but such overspending hurt the borrowers in later years when the rates were adjusted upwards (larger monthly payment no longer affordable) and refinancing was not an option because other lenders were offering similar rates.

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