If you still owe money on your mortgage when the current term is up, you’ll need to renew it for another term. At this point, you get a chance to reassess everything that affects your mortgage, including your choice of lender, interest rate, payment frequency and the length of your new term.
As such, your renewal period is crucial to the future of your mortgage and your finances in general, so it’s worth a much closer look.
Your mortgage is up for renewal when your mortgage term concludes, assuming you’re not at the end of your amortization period or have paid down your mortgage in full ahead of schedule. A mortgage term can last anywhere from a few months to 10 years, with five-year terms being the most common.
The term represents the length of time your mortgage contract is in effect with your lender. The contract outlines the terms and conditions of the mortgage, including your interest rate, the type of mortgage rate you have (fixed or variable), and any fees associated with the contract under certain circumstances, such as prepayment penalties.
As long as you’ve made your payments on time, it’s relatively easy to renew your mortgage with the same lender if you wish, as they will send you renewal papers to sign and send back. Of course, you can — and probably should — also shop around to different lenders to see if you might be able to get a better interest rate or other favourable conditions, such as lower prepayment fees.
You will likely have plenty of time to decide whether to renew your mortgage with the same lender or switch providers. That’s because federally regulated lenders, such as banks, must send you a mortgage renewal statement (or let you know they will not be renewing your mortgage) at least 21 days before the end of your term.
A renewal statement outlines the following:
You will likely receive your renewal statement at the same time as you get your renewal contract.
Before signing your renewal contract, there are several factors you’ll want to mull over:
You can use these questions as a guide to determine whether you want to switch lenders. But don’t wait until you receive your renewal contract to make your decision. If you do decide to switch, it’s important to know the consequences of doing so.
Switching lenders means you’ll need to submit a new mortgage application, and the new lender may use different approval criteria than your previous one. You must also consider the cost of switching, which can include a home appraisal, setup fees (e.g., discharge, registration, transfer or assignment fees), and any other administration fees.
These costs can vary by province, but it’s typically between $200 and $350 for the mortgage discharge fee and around $70 for the re-registration fee. Legal fees may also factor in, but ask your new lender if they will cover any of these expenses. Sometimes they will do so as a good-faith gesture because you are switching to them.
At any rate, switching lenders at the end of your term is much cheaper than breaking your mortgage contract mid-term.
If you decide to break a closed mortgage before the term expires, you will have to pay a prepayment fee. A prepayment fee also applies if you pay back your entire mortgage before the end of a term (including when you sell your home), or if you pay more than your contract allows. These prepayment fees can cost thousands of dollars.
If you have an open mortgage, then a prepayment fee will not apply, but there are many cases where the total cost of switching lenders may exceed any benefit or savings you may receive with a new lender.
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When you renew your mortgage term with the same lender, it’s ideal to renegotiate your interest rate, especially if interest rates have gone down. But ask what all the fees and charges will be if you renegotiate, as they must disclose how they calculate these fees.
Some lenders allow you to renegotiate your interest rate before the end of your mortgage term through a blend-and-extend option. This allows you to extend your existing term at a lower rate by blending the new lower interest rate with the old one.
You may also be able to get a better interest rate or more favourable conditions in your mortgage contract if your lender is prepared to match the offers of other lenders in order to keep your business. If you use this tactic, be prepared to provide documentation about the offer to your current lender as evidence.
Aaron Broverman has been a personal finance journalist for over a decade. His work has appeared on such outlets as Yahoo Finance Canada, Bankrate and Creditcards.com, Money Under 30, Wealth Rocket, CBC.ca and Greedyrates.ca. This former Toronto transplant via Vancouver now lives in Waterloo with his wife and son.