Northern Ontario: How to find the best mortgage renewal rate

More than two million Canadians will renew their mortgages over the next year-and-a-half. CTV News asked more than 50 mortgage brokers across Canada how to get the best mortgage deal. This is what we found.

With the Bank of Canada set to unveil its interest rate announcement this week, homeowners might be wondering if they should choose a fixed or variable rate for their mortgage renewals.

The next rate announcement is set for June 5.

 In northern Ontario, the average monthly mortgage rate payments have steadily increased by more than $1,000 between January and March from 2019 to 2024, according to the Canadian Mortgage and Housing Corporation.

Wendy Krukin, a mortgage broker in Sudbury, said she's heard from several clients who are concerned.

"There is that payment shock as people are maturing into a higher interest rate environment," Krukin said.

"I have clients that were around two and a half per cent back when they may have locked in four or five years ago or even around the pandemic time. And now we're seeing rates that they're coming up for renewal around five to six per cent range."

Volatile market

Homeowner Lorenzo Stradiotto locked in at a fixed rate of 6.8 per cent a year ago. The Sudbury chiropractor said it was difficult to acquire a mortgage.

"My first mortgage on this home, it was through a 'B' lender. So I wasn't able to use the five major banks," Stradiotto said.

"And because I'm self-employed, it is a little bit more difficult to acquire a mortgage, especially as a young professional."

When it came time for him to renew his mortgage, he said there were some concerns on his mind.

"It's a volatile time now. So it's hard to predict the market and whether or not home prices are going to decrease or whether or not interest rates will decrease," Stradiotto said.

Out of concerns over a volatile market, he chose a fixed rate of 4.99 per cent over five years.

"I'm not an economist, so I don't know where the market is going," Stradiotto said.

"I wanted to play it safe."

Fixed-rate vs. variable

When mortgage brokers were asked "what kind of mortgage is best right now," 59 per cent said a fixed rate.

Thirty-four per cent of mortgage brokers said "It depends," while seven per cent chose a variable rate as the best.

Krukin said she generally recommends a three-year fixed rate or a five-year variable rate. She said one and two-year terms are often priced high.

"Three-year fixed is a sweet spot. It has very good pricing, It's not very long-term. So we can kind of see where rates are headed in the next couple of years," she said.

"The variable is another option to look at because, yes, it is higher today. However, there's that opportunity that if the Bank of Canada starts cutting rates in the next couple of months, your rate and payment will automatically decline accordingly."

As for whether a variable or fixed is a better option, Krukin said, ultimately, it depends on the client's needs.

Options in a cash crunch

"If a client comes to me and says they can't make their payments, their rates have gone up several times and it's just too much, converting them into a fixed rate today might be the best option for them rather than having to be forced to sell," she said.

"So it's going to give them that pain alleviation. But if they're not under that much pressure and they want to see ride the wave and, you know, see where things go, then variable might be better."

She said her best advice for homeowners is to shop around.

"A lot of clients will get a renewal notice or letter from their bank about six months in advance," Krukin said.

"If you have a two per cent rate or a very attractive rate and you take that early renewal today, but your mortgage doesn't actually mature until let's say September-October, you're locking in at a higher rate and paying more interest now."

For the June 5 rate announcement, Krukin estimates there won't be an increase.

"My prediction is in the June announcement that's coming up quite soon, we're going to maybe see a quarter of a per cent rate decrease," she said.

"That's about 25 basis points we might see. If not, I think they'll hold steady. I really don't think we're going to see any rate hikes at all."

Responses by four northern Ontario mortgage brokers to CTV News' Mortgage Broker Questionnaire:

What is the best type of mortgage to have right now, and, for how long?

Caroline Montpellier of Sherwood Mortgage Group in Greater Sudbury chose fixed over variable.

"This is hard to answer because it’s dependent on each client’s situations. I always explain the difference between fixed and variable to everyone and let them choose," Montpellier said.

"Personally, I believe fixed is a better option for anyone who would benefit from a steady payment that won’t change until renewal. It’s easy to budget and there are no surprises. If payment fluctuations are not an issue for you and your day-to-day life wouldn’t be affected by increases, then variable might be best for you. It’s about knowing all the risks and rewards with each and figuring what works best for each client. Five-year terms will always offer a lower interest rate, therefore a lower payment. The downside is if you need to break that mortgage early, the penalty is usually higher than with a variable rate."

Pam Jaehrling of Mortgage Architects in Sault Ste. Marie said a five-year fixed rate is best.

"This is personal opinion, as I find in the north, people tend to (not) want to risk anything. They need to know exactly what their payments will be for the next several years," Jaehrling said.

She also said a five year prime – 1.1 percent variable/adjustable rate "works great for individuals who may need to sell or break the mortgage as well as since prepayment penalty is much less that some traditional big banks."

Julie Malo, a Timmins broker for Sherwood Mortgage Group, also said the answer depends on many factors.

"As we evaluate each client's situation on a case-by-case basis, we make our recommendations based on their unique financial profiles and needs," Malo said.

"Currently, I am more frequently recommending either a 3-year fixed mortgage or a variable mortgage, depending on the client's individual risk tolerance."

Krukin of Today's Mortgage Choice in Sudbury said the best type depends on each client's individual situation and risk tolerance.

"If you are willing to start your mortgage term with a higher rate right now with the assumption that the Bank of Canada’s policy rate will drop in the foreseeable future, the five-year variable may generate the lowest borrowing cost over the entire term of your mortgage," she said.

"However, if you are more conservative and concerted that inflation might keep prime rate higher for longer, a three-year fixed term may be a good option. The three-year fixed rate will provided certainty that your rate and payment won’t fluctuate and you aren’t locked in as long, so you can take advantage of lower rates potentially sooner."

 What is the best rate you can get right now? (Specify rate and term length)

"This is another hard one to answer because we have options for one to five years and the rates fall everywhere," Montpellier said.

"These rates are dependent on loan to value, if the mortgage is insured and also, on credit scores. So, I never quote rate to clients until I have a better picture of their situation."

The best fixed mortgage rates available are five-year fixed rates as of May 27 according to the four northern Ontario brokers who responded to CTV News.

"Mortgage rates are dependent on a wide range of factors, such as purchase price, loan to value, credit score, etc. Borrowers don’t often realize that the lowest rates are for default insured mortgages with less than 20 per cent down," Krukin said.

"The lowest five-year fixed rate I have seen right now is around 4.69 per cent, however this is for clients putting less than 20 per centdown and have excellent credit scores. In terms of variable, the best rates I am seeing are around Prime minus 1.00 per cent and today prime is 7.20 per cent, which means the mortgage rate would be 6.20 per cent (and will fluctuate with changes to prime)."

• Today's Mortgage Choice: Five-year fixed at 4.69 per cent and variable prime less one per cent (6.20 per cent) on May 27
• Mortgage Architects: Five-year fixed at 4.84 per cent and variable prime less 1.15 per cent on May 27
• Sherwood Mortgage Group:Five-year fixed at 4.84 per cent (default insured) and variable prime less one per cent (default insured) on May 22

Should I get out of my variable mortgage if I have one?

Krukin said the answer depends on a variety of factors including how far to the loan maturity date, the penalty cost to break the current mortgage and the fixed rate being offered.

"If the net savings of locking into a fixed rate outweighs the penalty -- which is usually three months interest -- of breaking the variable rate mortgage, then switching to a lower fixed rate to have savings over the remainder of the term may be something to consider," she said.

"If you are assuming that prime rate will drop over the next few years, then riding out the wave may be a better option than paying a penalty or potentially locking into a higher fixed rate now. This is because if your variable rate drops in the future, you will have immediate savings as things start to come down."

"If you can hold on a bit longer, economists predict that we will see some relief in the overnight lending rate within the next year," Malo said.

Krukin said she is advising her clients whose cash flow is tight and who need payment relief that her team can "run the numbers to see what payment a lower fixed rate can offer."

"The overnight lending rate directly influences the bank prime rate, with further decreases expected in the following year."

Jaehrling said to not get out of a variable mortgage unless the discount is not good.

"I don’t like to see anyone waste money on extra interest costs. Variable mortgages are different than adjustable mortgages, which will go up and down with interest rates. Variable is static and payment stays the same, the difference is how much is really going to principal," she said.

"So in a declining interest rate environment, your payment staying the same means more money is paying down principle quicker."

Montpellier said if you are comfortable with your current mortgage payment and it is not affecting your budget, you don't have to get out of it.

"None of us have a crystal ball, but I don’t think anyone is expecting the Bank of Canada to increase rates right now. Most lenders do offer an option to switch to a fixed mortgage, so that’s a good exit strategy for someone who is unsure," she said.

"There is an opportunity to transfer to a different lender and get a better rate that way though."

Should I opt for a longer amortization period?

A way to lower a monthly mortgage payment is to amortize the loan over a longer period of time, but depends on a person's financial situation and future goals.

"If your primary goal is to have a lower payment, then opting for a 30-year amortization vs. standard 25-year will allow you to have a lower monthly payment. However, if you are focused on paying the least amount of interest over the life of your mortgage, then a shorter amortization will mean that you are paying less interest over the life of your loan," Krukin said.

"If you are purchasing or refinancing with the intention that you may need to qualify for additional properties (rental, cottage, etc.) in the future, then a longer amortization will allow you to have a lower payment showing on your credit bureau and can make qualifying for the next home a bit easier."

She said the maximum amortization is 25 years for mortgages with less than 20 per cent down, unless it is a new build which may qualify to be extended to 30 years.

Montpellier said extending the amortization period is only done at renewal, refinance or when switching lenders.

"This will decrease your payments because it stretches the remaining principal amount over a longer period. If your payments aren’t manageable, it’s a great tool to make things more comfortable," she said.

"When extending amortization, it will take you that much longer to pay off your mortgage (if you don’t take advantage of prepayment options). You will also end up paying more interest over the length of the mortgage since you’re borrowing the money for a longer period of time."

Malo said she recommends starting with the longest amortization period available.

"This approach allows you to use pre-payment privileges to shorten the amortization when possible," she said.

"It also provides the flexibility to revert to the lowest possible payment if you encounter financial challenges, such as job loss or health issues especially for clients who don’t have liquid assets to fall back on."

Jaehrling said opting for a longer amortization period can increase cash flow.

Can I trust a bank for mortgage renewal advice?

Responses were mixed, but stressed the importance of shopping around.

Montpellier answered "yes."

"There are definitely some advantages to working with mortgage agents though, such as flexible hours, lower penalty calculations and access to many different lenders," the Sherwood Mortgage Group broker said.

"When going to a bank, you only have access to what that specific bank offers. It doesn’t hurt to contact a mortgage agent you trust when you receive a renewal letter and ask if there’s a possibility for a better rate."

Krukin said the biggest mistake borrowers make is signing their bank's first renewal offer.

"This can cause you to end up paying thousand more in interest over the term. Don’t renew your mortgage early with your bank without consulting a mortgage broker that will be able to shop around. With access to dozens of lenders in the marketplace, I am able to compare and negotiate the best rate/terms for my clients needs," the Today's Mortgage Choice broker said.
"As well, banks often call clients around six months early to offer them the chance to renew now as rates could be higher if they wait. However, if you currently have a rate near 2.5 per cent, there is no reason to give up that incredibly low rate/payment for a higher rate today. When you early renew now you are giving up your amazing rate and locking into a higher rate than you have now and potentially higher than your maturity date."

Malo answered "no" and recommends seeking a second opinion on the bank's offer.

"Over the past year, I have often been able to save clients significantly at renewal compared to their bank's offerings," the Timmins-based Sherwood Mortgage Group broker said.

Jaehrling agreed with Malo and said "no" as well.

"They are having people sign before maturity and then you have a higher rate," the broker from Mortgage Architects said.

"Also finding they are not giving the 'best rate,' monoline lenders are better at giving best rates."

What piece of advice or knowledge would you pass onto anyone looking to renew their mortgage?

Jaehrling said to carefully consider your cashflow.

"If you need to spread your mortgage back out to the full 25 years or even 30 years, you can always lump sum on your mortgage to shorten your amortization period," she said.

"But in a time of high prices for just about everything if you can get this static payment lower, this will help you with everything else."

Malo said the lowest rate isn't always the best option.

"Bankers, who handle various aspects of the financial services industry, may not be experts in mortgages," she said.
"It's advisable to seek the advice of a reputable broker to ensure the mortgage you take is best suited to your financial situation and personal goals."

Montpellier said she always recommends contacting a mortgage agent to discuss a renewal.

"Sometimes, lenders don’t offer their best 'off the hop' and there’s an opportunity to get a better product that better fits your needs," she said.

"It’s not always just about rate either; prepayment options, portals, penalty calculations, these are all important factors to consider. We offer e-signing and zoom options as well. Many people work shift work or around their kids’ busy schedules and these options make renewing your mortgage (or applying for a new one) that much easier."

Krukin said payment shock from higher rates can be mitigated with several strategies:

• Discuss your options with a mortgage broker. Get professional advice with a mortgage expert that can help you increase your cash flow by consolidating higher interest debt or give you payment relief by extending your amortization back out to 25 or 30 years.
• Don’t sign the banks first offer. A common mistake is to stay with your existing lender for the sake of convenience. That can cost you thousands of dollars in interest if your lender is not competitive or offering you the best rate. Consult with a mortgage broker that can shop the market and explore other options and potentially lower rates.
• Don’t wait until the maturity date. Waiting until the last minute will limit your options and leave you stuck with your current lender. Working with a mortgage broker 180 days before your renewal will give you the chance to shop for lower rates and consider different options that may better suit your current situation.