The saga of renewing our mortgage is over. Thank goodness. This is one of the less fun parts of farm ownership.
But, it’s important.
It’s because of careful financial planning that Matt and I were able to buy the farm in the first place. We stay on top of our finances and prioritize our mortgage to ensure we’re able to maintain the lifestyle that’s so important to us.
Today I wanted to share a bit of our experience renewing our mortgage. Hopefully, there are a few lessons in here that might help others as well.
We were eligible to renew as of six months before the end of our mortgage term. It’s important to take advantage of this long lead time and not wait until the last minute.
Matt was watching the interest rate forecasts and suspected that the rates were going to go up, so he wanted to lock in as soon as possible. We also knew we would likely need time to negotiate the best deal.
Give yourself as much time as you can so that you’re not scrambling–and potentially paying more than you need to–at the end. I’ve also learned that rates are often lowest in the summer, so if you can work that into your timing you could have an advantage.
Organize your records
To renew, our lender needed up-to-date paperwork for our property taxes and insurance.
The credit union that holds our mortgage had gone through a merger in the last five years and changed its name as a result. We had to update our insurance to reflect their new name, which took time (much more time than it should have, but that’s just the one of the joys of home ownership).
Most cities will issue a tax certificate which shows the status of your property tax payments. Our city does this for a fee of about $60. For our credit union, our most recent tax bill showing it had been paid was sufficient.
If you’re going to transfer your mortgage to a different lender, you’ll likely need additional paperwork regarding your house, employment and income tax.
Negotiate for yourself
At our first renewal meeting at the credit union, they had little cards all around the office promoting a 2.69% interest rate. And then sitting in the meeting they offered us 2.99%. Ummm… what?
Even Baxter agreed that didn’t sound right.
It turned out that the 2.69% was for new customers only. Matt, who knew I was about to lose my mind, was very careful not to look at me. Why do you not reward loyal, reliable customers?
After a conversation, our agent offered to put in a request to “head office” for 2.79%. I still wasn’t happy, but it was better than nothing.
Guess what rate was approved. 2.89%.
Matt’s reaction was, “Well, it’s better than what we’re paying now. And what if rates go up?”
I said, “Give me a week.”
I booked appointments at two other banks, gathered all of our paperwork (including extra paperwork about our personal financial situation) and went to work. In the end, I managed to secure two offers at 2.64%.
Because these companies weren’t familiar with the farm, we would have to go through an appraisal again. But both banks waived the fee.
Matt shared the emails with the new offers with the credit union—the written evidence was important. And… they matched the rate. Thank goodness.
Biggest lesson from this renewal process. Do not accept the first offer you receive. Work with your current lender. Engage a mortgage broker. Shop around to other lenders. Do everything you can to get the best deal for yourself.
While a quarter of a percent may not seem like a huge decrease, on hundreds of thousands of dollars over five years (or longer) every percent makes a difference.
Read your mortgage policy
Before you sign anything, read the paperwork—even the dense, legalese, policy parts. Understand what is expected of you and what flexibility exists for payments.
For Matt and me, being able to adjust our payments if needed and being able to make lump sum payments against the principle are important.
There have been some changes to our credit union’s policies, so it was important to understand how that would impact how we usually manage our mortgage.
Pay attention to your payments
Thanks to our lower interest rate, our new payments are much lower than they were before–or they could be. Matt and I have chosen to keep our payments at the same level, which means we’re putting more towards the principle than before–$63.80 every single week. That’s more than $3,300 extra that we’re taking off the principle every year, which means the farm will be completely ours that much sooner.
Consider your situation
Five years is a long time. Things may have changed since you first signed your mortgage. When renewing your mortgage think about where you’re at now in your life as well as what’s ahead and what you need.
Maybe interest rate isn’t most important to you. Maybe you want to change your payment amounts or timing. Maybe you’re ready to renovate and want to set aside money for that. Over the last five years, Matt and I have changed jobs, renovated, bought a new car. And who knows what’s ahead.
We’re confident that we’ve done our best to set up the new mortgage in the way that works the best for us and that we have the flexibility to adjust if we need to.
Anyone else have a mortgage story to share? What are your tips for negotiating with a financial institution? How do you balance lifestyle and finances?
We are in a 30 year mortgage with a locked in rate. The only thing that fluctuates about ours in the tax and insurance that we escrow with it. I’ve never heard of renewing every 5 years. Is that pretty stressful?
Interesting. I don’t think that’s an option for us here. Our mortgage term is 25 years, as in the interest rate is amortized over 25 years. However, every five years you renew and negotiate a new rate. If rates have risen over that period, your rate will rise, no matter what you were paying before or how good of a negotiator you are. It’s a bit stressful in terms of uncertainty about what you might be paying down the road–all the more incentive to pay it off quickly! There are terms less than 5 years, but I don’t think there’s anything longer. We are locked in for the next five years (there are also variable options where the interest rate fluctuates).
Decades ago, when I had a mortgage on my house, my mortgage allowed me to rewrite to a lower rate if interest rates decreased significantly. I did that several times, but kept the payments the same. That shaved a couple of years off my mortgage. But when I renewed, that option was no longer available – guess the bank was losing too much money on people like me. But even if the renewal was at a lower rate, I kept my payments the same and eventually got the mortgage down enough that the bank switched it to a line of credit, which was much easier to pay off. It was tough to keep making the higher payments, but worth it in the end.
Good for you, Jane. It can make such a difference in the end.
Interesting. Like blueticked, we have a 30 year mortgage with a fixed rate. Ideally we should be paying attention to the current rate and if it drops significantly should refinance to snag the lower rate. Unfortunately, I have not been paying attention to the current rate so I can’t even tell you what it is right now.
Good for you shopping around to get other quotes! We have always hated the “new customer” discounts that places offer when you are a loyal customer. They should have “loyal customer” discounts!
I second that motion!
Just out of curiosity, I did the math on how much is a quarter of a percent of interest on $500 000 over 5 years. It’s $6250! On an actual mortgage it would be a bit less because as you make payments the amount you pay interest on goes down, and my calculation doesn’t take that into account. (That would be WAY too much math for a Saturday morning!) But it would still be a nice chunk of change, if you imagine having that every 5 years to throw into, say, your renovation budget…
It does add up. We love watching the interest portion of our payments go down and the principal part go up. After a little while, it starts to move so quickly and you really notice how much progress you’re making towards paying it off.