Consider more than rates when renewing your mortgage

So it's time to renew your mortgage! Chances are, your circumstances have changed since you started your last mortgage term. Renewal is a great time to revisit your financial goals, figure out how your mortgage payments fit into your budget, and find a mortgage option that works best for you.

Don't sign up for the same type of mortgage that you had before without a review of your circumstances and the options available to you.

The first thing to consider is whether you prefer a fixed rate or variable rate term. As you may know, a fixed rate provides you with the security of knowing what your interest rate will be for the term of your mortgage (for example 5 years).

A variable rate term will fluctuate with the prime rate, but offers a greater chance of saving on interest costs over time.

Understanding your comfort level with fluctuating rates will help you determine what's best for you.

Another point to consider is your amortization - or length of time it will take you to pay off your mortgage.If you have taken on additional expenses you may wish to decrease the amount of your monthly payment. This can be done by increasing your amortization.

However, be aware that this will increase your overall costs because your mortgage will take longer to payoff. If your cashflow has improved since your last mortgage term, you may want shorten your amortization. This creates a higher monthly payment, but reduces your overall interest costs because you pay off your mortgage faster.

If the interest rate for your new term is lower than your previous rate, by keeping your regular payments the same, you will reduce your amortization, without having an impact on your budget.

Too many Canadians just look at the rate when the real secret to saving money at renewal time is to explore term, amortization, payment frequency and even pre-payment options.

Revisiting your financial picture and your future goals makes sense at renewal. By doing so you will be able to make any necessary adjustments to your mortgage that will allow you to live comfortably today while preparing for your future.

Thanks to Matthew, Account Manager, for the information. You can read the entire article at the RBC Advice Centre.