As record-low interest rates continue to drive Canadian home buyers into the real estate market, property owners should take this opportunity to re-evaluate their existing mortgages.

Mortgages that are up for renewal right now open the door to terrific rate savings, but what can Canadians who are stuck in the middle of their mortgage terms do to take advantage of attractive interest rates?

Contrary to popular belief, forcing a mortgage lender, or "mortgagee," to let you renew your mortgage in mid-term may be harder than you think.

Some borrowers, or "mortgagors," have tried to outsmart their lender by not making regular payments.

Missing a few mortgage payments does give the lender the right to "accelerate" repayment, that is, call the whole mortgage debt due and payable. However, lenders are not automatically required to exercise this right. Instead of the borrower getting off the financial hook and being free to refinance at lower rates, the lender uses another right given in the loan contract and usually threatens or takes steps to sue the borrower for non-payment -- an expensive learning lesson. Moreover, why would other lenders offer financing to a borrower who doesn't pay? Bottom line: Make all payments in a full and timely manner.

Closed mortgages do not normally allow for early renewal, but you'll never know for sure unless you check the mortgage document or contact your lender directly.

Fully-open mortgages may be repaid at any time without penalty, so taking advantage of these record-low rates may not a problem.

Other mortgages usually include provisions to cover early renewal, provisions which carry a penalty for mortgagors. Depending on the terms of the mortgage contract, the borrower may have to pay an amount from three months interest to the entire amount of interest to which the lender is entitled

No, this is not mean, it's business. That's why it is important to know what you are getting into when you sign on for a mortgage. Always have the lender or your lawyer identify and explain the clauses which outline the exact cost of changing your mind.

Sometimes a 1/4 point savings in interest rate may not be worth a huge discharge penalty, especially if you expect to sell in the near future.

Try and negotiate a penalty reduction, particularly if you and your family have considerable holdings with the lender. If you don't ask, you don't get.

Faced with paying a penalty of hundreds of dollars, if not more, you may feel there is no point in exploring early renewal. Since good mortgage decisions are based on fact not feelings, have your mortgage lender or financial advisor demonstrate the savings an interest drop will generate over a realistic period (Everything looks good over 25 years, but how much longer do you really expect to live there?). Because mortgage interest is compounded semi-annually, that is, you pay interest on interest every six months, savings will often be considerable even after paying a penalty.

Many sites, such as that for the Canadian Institute of Mortgage Brokers and Lenders have mortgage calculators mortgage calculators so you may be able to sort this out yourself.

Accelerate Returns

Every time you renew your mortgage or sign up for a new one, consider using one or both of the following strategies to reduce the total amount of interest you pay and repay your mortgage sooner. An online calculator, your broker, financial advisor or mortgage lender can demonstrate the interest savings involved.

• Shorten the amortization period. If you have 16 years left in the amortization period when you renew, consider dropping to at least 15 years of less or even taking a few months off. Decreasing the amortization period saves on interest, but it also increases your payment so don't get too carried away.

• Pay down the principal. Pay off even a few hundred dollars of the outstanding balance if allowed without a prepayment penalty and save interest costs.

A Final Word Of Warning:

Renegotiating your mortgage rate is only worthwhile when you save more than the transaction costs you within a reasonable timeframe. Banks and other financial institutions seem to have fees on top of fees these days, so make sure all administration costs are included in your calculations.

For more articles by P.J. Wade, please press here.

Published: November 27, 2001

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Strategist and Futurist is The Catalyst -- intent on "Helping The Best Get Better." An internationally-recognized "new retirement" authority, PJ's research, writing and speaking programs focus on decisions Baby Boomers face to achieve a successful future. Author of 6 books, PJ knows that, since home is headquarters for the "new retirement," professionals and consumers need relevant knowledge and insights, along with solid decision-making skills, to protect and enhance this private oasis. As The Catalyst, PJ provides strategic communication, client appreciation and advanced education services to the financial, tourism, lifestyle and service sectors -- and the clients they serve. A frequently quoted financial and business commentator, PJ is a thought-provoking strategic speaker who offers practical, real-life suggestions on leaving "the box" behind and embracing Forward Thinking -- a talent she regularly demonstrates in this column. For more, visit TheCatalyst.com.