When it comes to mortgage renewal, Canadians are facing the reality of higher interest payments in the near future. Despite expectations of rate cuts by the Bank of Canada (BoC), existing mortgage holders, especially those who locked into fixed rates at record lows five years ago, are bracing for increased rates upon renewal.
Amortization Extension: A Viable Solution
One option for borrowers looking to mitigate higher mortgage payments is to extend the length of their mortgage’s amortization period. This entails spreading out the timeline over which the mortgage is paid off in full. By doing so, borrowers can potentially lower their monthly payments, providing immediate relief from increased financial strain.
Understanding Amortization Extension
In Canada, the maximum amortization period for mortgage renewal is typically 30 years, with certain exceptions for borrowers with 20% or more equity in their property. For those with less than 20% equity, such as high-ratio or insured mortgage holders, the amortization is capped at 25 years.
Options Available for Borrowers
Stick to Original Schedule: Some borrowers may choose to stick to their original amortization schedule and simply renew at the best available mortgage rate at the time of renewal. This option provides continuity but may not offer immediate relief from higher payments.
Extend Amortization: Borrowers can opt to switch to an uninsured mortgage type at renewal and extend their amortization by up to five years, totaling 30 years. There is typically no penalty for extending the amortization at renewal, although legal assistance may be required to re-register the mortgage.
Refinance for a Longer Amortization: Another option involves breaking the existing mortgage and refinancing into a new uninsured mortgage renewal with a full 30-year amortization, extending it further to 35 years. This can be done at mortgage renewal without penalty or at any time during the term, albeit with potential pre-payment penalties.