What is a mortgage renewal?
When your term is nearing its end, you have two main options: renew or refinance. Both let you adjust your mortgage, but the difference matters for your goals.
A renewal happens when your mortgage term ends and your lender offers to extend it under new terms. Most Canadian mortgages are amortized over 25 to 30 years, but the term (the period your rate and conditions are set for) is usually much shorter, often one to five years.
If you’ve made your payments on time, renewing is usually simple: your lender sends documents and you sign. But it’s also the best chance you’ll have to reassess your finances before accepting.
Questions to ask yourself before you sign
- Has your income gone up? You may be able to pay your mortgage off sooner with higher payments.
- Have you had a loss of income or other difficulties? It may affect the payment you can manage.
- Are new expenses coming? Tuition, a new child or other changes can change what you need from your mortgage.
- Are you planning to move in the next few years? A long term might not suit you.
- Are you expecting an inheritance or extra income? You may want more flexible prepayment options.
Market factors to weigh
- Today’s rates versus yours: If rates have dropped, you may be able to lower your payment.
- Where rates are heading: If they’re expected to rise, locking in now could save you money.
- Your current lender: If you’re unhappy with their service or flexibility, this is your chance to move.
- The cost of switching: Factor in any setup, transfer, appraisal and legal fees.
Pros and cons of switching lenders
Pros
- More flexible terms for your situation.
- A better rate, which can lower your payments or help you pay off your mortgage faster.
- More prepayment options.
Cons
- Paperwork and a new approval process.
- New qualification criteria to meet.
- Possible fees such as transfer, appraisal and lawyer or notary fees.
- If your mortgage was insured, you may need a new insurance premium in some cases.
Renegotiating with your current lender
Even if you want to stay with your lender, you don’t have to settle for the renewal terms your lender offers; a proactive approach can make a significant difference to your long-term finances. Having a broker shop the market gives you real numbers to negotiate with, and lenders are often open to a better rate or more prepayment flexibility when you have a competing offer.
Thinking about borrowing more or changing your amortization at the same time? That’s a refinance, and I can compare both options for you.
Mortgage renewal: common questions
When should I start looking at my renewal?
About four to six months before your term ends. Many lenders let you hold a rate for 120 days, which gives you time to compare.
Does it cost anything to switch lenders at renewal?
There’s no penalty at the end of your term, but there can be small costs like legal or appraisal fees. Some lenders cover them; I’ll show you the full picture.
Is renewing the same as refinancing?
No. A renewal continues your current mortgage under new terms. A refinance replaces it, often to change the amount or access equity.
Written by Alex Thomson, independent mortgage professional
