Early Renewal of a Mortgage

Early renewals of mortgages are often promoted by lenders, in the effort to simplify the renewal process with the ultimate goal of having the borrower stay with the existing and current lender. 

Many financial institutions and lenders allow borrowers to renew at an early date with simply paying a small administration fee.  Early renewal is a popular strategy when borrowers feel that interest rates are set to rise in the near future.

The mortgage market is extremely competitive in Canada.  Many lenders will offer a 120 day early renewal option.  In many cases, lenders will allow the early renewal with no penalty charges to the borrower.  Lenders also offer a 30 day renewal rate guarantee.  What this means is that when borrowers renew their mortgage at maturity, they are protected from interest rate increases for a period of 30 days prior to maturity.  If interest rates drop by the maturity date, borrowers will automatically receive the lower rate from the lender. 

Early renewal of a mortgage provides convenience to borrowers.  Borrowers  do not have to re-qualify for the mortgage.

Blend and Extend

Blend and Extend refers to situations in which lenders allow borrowers to take advantage of lower mortgage interest rates by extending the term of the mortgage prior to the maturity date of the mortgage.  Blending and extend occurs by “blending” the existing mortgage interest rate with the new term’s mortgage interest rate. 

Blend-and-extend option: Calculation of new interest rate

New interest rate =   (A x B) + [(C x (D – B)]

                                                     D

A: Interest rate of the existing mortgage term

B: Remaining months in the existing term

C: New interest rate

D: Number of months of the new term

Note: Some financial institutions may use the current rate that they are offering for new mortgage terms.

Increase and Blend

Increase and blend refers to taking out equity in the event a borrower’s property has increased in value.  Borrowers in certain circumstances would like access to added capital for a variety of reasons including to fund renovations, fund businesses, investment in properties or other investments in addition to many other reasons.  Blending allows individuals to increase the present mortgage, and the additional funds or borrowed amount will be set at current mortgage interest rates.  What this does is actually blends the two rates. 

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April 27, 2017

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