Our mortgage is up for renewal later this year. That’s a shame because I’m enjoying the ultra-low 1.90 percent interest rate on our five-year variable mortgage (prime minus 0.80 percent). It’s a near certainty that I’ll have to renew at a higher rate this summer.

My bank is offering five-year variable rates at prime minus 0.10 percent, which means a mortgage rate of 2.60 percent. That’s not much of a discount off of the five-year fixed rate they’re advertising, which comes in at 2.94 percent.

Five years ago, when the deeply discounted variable rate was 1.50 percent lower than the five-year fixed, it was a no-brainer to go variable. Now it’s not so cut-and-dried.

What is clear is that we’re living in the golden age of low mortgage rates. Remember three years ago when BMO introduced its controversial 2.99 percent ‘no frills’ mortgage?

Now it’s rare to see mortgage rates ABOVE 3 percent – and most come with all the bells and whistles; from 120-day rate holds and pre-approval, to double-up monthly payments and lump sum payment privileges.

For nearly a decade we heard how interest rates couldn’t possibly get any lower and that the smart thing for homeowners to do was lock in their mortgage with a five or even a 10-year fixed rate.

It turns out the best advice was to do what has almost always saved Canadians the most money over the last 50 or 60 years. Go variable.

Renewing your mortgage

Once again I’ll act as my own mortgage broker, doing research online and using comparison sites like Rate Supermarket and RateHub as a launching point for negotiations.

My preference is to go with the best of the five-year variable mortgage or the one-or-two-year fixed rate mortgage.

2-year fixed rate mortgage

My bank is pushing a two-year fixed rate mortgage at 2.29 percent. Since variable rate discounts have all but vanished (I’m not holding my breath waiting for prime minus 0.80 percent to come around again) a two-year fixed rate might be the sweet spot where I end up this time around.

Final thoughts

Homeowners really can’t go wrong renewing their mortgage in today’s low rate environment. Whether you go long, short, variable, or fixed, you should walk away smiling after you renew. Every option, other than an open variable, should be below 3 percent.

Also read: The pros and cons of going short with your mortgage

I’m also not fearful of future interest rate hikes – I know it could happen someday. I do, however, want to save the most money on my mortgage today while retaining some negotiating power for the future.

If and when those deep variable rate discounts come back I’ll hopefully be ready to jump on the opportunity to save even more.

Are you renewing your mortgage this year? What options are you considering?

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12 Comments

  1. Rob on February 15, 2016 at 8:43 am

    Variable closed 5 yr are around for lower than you’ve been quoted. I had a client that was just got 2.2% from BOM and my mortgage broger just got me 2.15%

    • Varun on February 20, 2016 at 10:17 am

      Hey Rob, mind sharing the contact info of your broker? I’m up for renewal later this year too. Thanks!

  2. My Own Advisor on February 15, 2016 at 9:24 am

    I think you should be able to get ~2.2% Robb, in a 5-year variable product with 15/15 payment options – which is very good.

    Rates aren’t going anywhere anytime soon…

    Good luck with the process!
    Mark

  3. Dima on February 15, 2016 at 10:03 am

    Advertised rates have nothing in common with a real deal. I bet you can ger 1.9, as I got 1.95 in August from TD

  4. Echo on February 15, 2016 at 10:11 am

    Thanks, Rob and Mark! I’m still a few months away from anything formal…just looking at this point. As I mentioned, I’ll use these advertised rates as a jumping off point for negotiations. Hopefully the bank will play ball, otherwise I have no problem switching lenders.

  5. Dan on February 15, 2016 at 10:41 am

    I renewed mine in December – 5 year variable at 1.90%. I noticed rates jumped a bit right after I locked in mine but I think it would still be possible to get something at/near that level with some shopping around. I used a broker, I was originally with BMO but they weren’t able to match 1.90% so I switched

    • Echo on February 15, 2016 at 10:46 am

      Hey Dan, thanks for sharing. Can I ask how low BMO was willing to go?

      • Dan on February 16, 2016 at 11:28 am

        2.4% – making it a no brainer to switch

  6. Tamir on February 15, 2016 at 1:04 pm

    If you’re already with TD, don’t you have a collateral mortgage and leaving then would incur additional legal fees?
    Shouldn’t you factor that in when considering the costs of switching lenders?

  7. Michael on February 15, 2016 at 1:12 pm

    Great column as usual. I took this renewal very seriously since my first mortgage rate was fixed and locked me into at at 5 year 1.4% higher than the norm when the rates went down 6 months later.

    This time I shopped with Butler Mortgage and was told that the bank had offered me a line of credit (Which I never used nor intended to use).

    The line of credit attached to the mortgage would require a refinance and additional legal fees roughly $1000 to release. It was a surprise and I tried to find a solution but didn’t come up with one. Therefore I had to receive a savings of greater than that amount to switch.

    Butler worked with me on maximizing my opportunity and I was offered 5 yr fixed with the bank for 2.94. A friend down the street was with the same bank at a different branch and was offered 2.77.

    I took that back to the bank and got the rate. I am now locked in at 2.77 for 5. I would have switched but am still pleased the effort saved me more than $5000 over the term.

  8. R on November 9, 2018 at 12:50 pm

    Hi Robb,

    Your two-year term might have ended this year. What did you do now? Variable or fixed? For how long?

    I’m currently at 2.34% fixed and renewal will be coming in Nov 2020. Still a bit of ways away but interest rates are climbing way faster than what anyone would’ve predicted.

    The best 5’er is approaching 4%.

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