The current interest rate climate has undergone significant changes compared to a year ago, necessitating a new approach for mortgage brokers and their clients during renewals. The rapid rise in the overnight rate, from 0.25% in early 2022 to 5.0% in just over a year, has posed challenges for brokers, particularly in finding solutions for clients. This unique situation calls for a dramatically different strategy, as the conventional wisdom about the mortgage business and renewal advice has been challenged by these unprecedented rate changes. Let’s explore different renewal strategies.

The End of the 5-Year Standard?

A significant shift has occurred in recent months, moving away from the 5-year term as the default option for mortgages. Previously, convincing people to consider shorter terms was challenging, but now clients themselves are showing interest in shorter terms. This change is influenced by the high-interest rate environment and the Bank of Canada’s decision to pause interest rate hikes. Many expect rates to potentially drop slightly in the next couple of years, making two- or three-year terms a viable option worth exploring.

Is it advisable to remove variable mortgages as an option?

Whether you’re confident in a rate drop over the next two or three years or not, it is strongly recommended against choosing a variable rate. That’s because variable-rate mortgages are uncharacteristically higher in comparison to fixed rates—even on a 2- or 3-year term—while penalties for breaking either term are relatively similar.

The is a lot of pf warranted uncertainty about considering variable mortgages for now; perhaps it would be more suitable when inflation subsides, and the Bank of Canada begins lowering rates.

In a more straightforward manner, right now, we shouldn’t be advocating variable mortgages to anyone unless they are in a very unique situation. Instead, we should focus should be on securing the best short to medium term fixed rate products for our clients and not be speculating on future variables.

Is it worth switching from Bankers to Mortgage Brokers for your renewal?

One way Ontarian’s are managing the current elevated rate environment is by transferring to new lenders. Clients are becoming more informed, and banks are less aggressive, leading many borrowers to explore other options.

A growing trend of clients using the big 5 banks are opting for transfers instead of renewals with their existing lenders, to those lenders offered by Mortgage Brokers. The reason: more choice, better rates and added flexibility.

In closing, let’s review the major differences between Bankers and Mortgage Brokers from all renewal strategies:

Mortgage Brokers

By working with a mortgage broker, you gain access to multiple lenders, enabling them to shop around and find the best mortgage product available for you. This means you have a wide range of options, including access to competitive rates.

The advantage of using a mortgage broker is that they handle all the legwork for you, sparing you from the need to negotiate with banks for a deal. They present you with various choices from different lenders, and with their guidance, you can select the most suitable option for your needs.

Even better, there is no cost to you for using a mortgage broker, as the lender pays them upon closing. This makes it a convenient and cost-effective way to find the best mortgage deal without any financial burden on your end.

Bankers

A banker is employed by a single financial institution and has the exclusive ability to offer mortgage products from that particular banking chain.

Due to this limitation, banks can only present their rates and products, which may not always be the most advantageous deal for you. While they may negotiate on terms and rates eventually, the responsibility for these negotiations falls entirely on you.

As a result, the process can be stressful and time-consuming as you navigate the negotiations on your own. An experienced Mortgage Agent can unveil all renewal strategies and make this journey smoother! Contact us.