So much has changed with Canada’s mortgage laws over the past few years, and it’s sure to affect how your renewal goes this time around. The economic climate and lack of new home buyers have also made banks hungry for new customers. Even though the penalty can be steep (usually the highest of either the interest rate differential or three months of interest), many people are choosing to renew their mortgages ahead of time anyway. There are three main reasons why people moving forward early, despite the obvious drawback, and there’s a good chance you’ll want to as well, if you fit into one of these categories.
- You Want to Lock in Super-Low Rates
Interest rates are at a historical low right now, and it’s unclear when they will begin to climb again. This, in and of itself, is enough to get people locking in fantastic rates. Banks are sending out renewal letters with competitive offers on the first round, in the hopes that they can hold onto the same customers. While renewing with the same bank means that you can avoid early renewal penalty fees, and you may be able to get a better rate, it’s still worthwhile to shop around a bit before committing. The promised rates are likely to be valid for at least a couple of months, giving you ample time to see what else is available.
- You Work in a High-Risk Industry
There’s a lot of worry among those who work in the gas and oil sectors that their jobs will be eliminated. Some of this has spread to related industries, as a ripple effect occurs. In Alberta, the situation is especially grim, with more than 12,000 people released through group layoffs so far this year, according to the Calgary Herald. That number only takes into account layoffs that include groups of 50 people or more, and some sources say the true layoff-count could be as high as 30,000. It’s too soon to tell how difficult the job market will become, or how far it will stretch. Right now, people involved in new-home sales or construction, luxury goods, and non-essential services are starting to feel the burn as well. Many people who feel there’s a chance their family will be burdened with job-loss or reduced pay are renewing their mortgages early for the security it brings.
- Your Household has a lot of Debt
Low interest rates have been a double-edged sword for Canada. On the one hand, they’ve helped pull the economy along. On the other hand, Canadians are amassing huge amounts of debt. According to a report from The Star, the ratio of debt to disposable income jumped up to 164.6% last quarter. In short, Canadians owed about $1.65 for each dollar they earned, when just three months ago it was closer to $1.63. As a whole, the country now owes about $1.874 trillion in consumer debt, which is up 1.8% since last quarter. Economists aren’t surprised by the uptick, and aren’t too worried, because Canadians have always done a good job of managing debts.
However, the Huffington Post recently reported that about half of the people in Alberta are living paycheck to paycheck. In this precarious position, their personal budgets will fail if paychecks are delayed by a single week. About a quarter of them don’t have access to meaningful emergency funds, and 40% feel overwhelmed by debt. With uncertain economic futures, even a small financial hiccup can be a disaster. Many people trying to manage high debt ratios are grabbing the low interest rates now, and sometimes pulling money out to cover debts with higher interest rates.
A fabulous offer can make you want to jump in right away, so you can begin to take advantage of the low rate. However, you should always work out the math and find out if you’re actually saving money by going with an early renewal, or if the penalty fees eat up any potential benefit. It’s also worth noting that mortgage brokers are often able to secure better rates, so it merits the time to set up an appointment and consult with one. Though the economic climate is shaky, the banks are eager to do business right now, which makes it a very good time to secure low rates, regardless of what draws you to them.