Mortgage Renewal In Canada: A Crash Course For Homeowners
TL;DR:
Mortgage renewal involves signing a new mortgage contract at the end of each term.
You don’t have to renew with your current lender.
You can — and should — negotiate your new mortgage rate.
Start the renewal process early and give yourself time to compare renewal offers.
If you still owe money on your mortgage when its current term expires, you’ll go through the mortgage renewal process. Once it's complete, you’ll have a new contract for the next phase of your mortgage.
There are generally two ways to go about renewal:
Passively
Accept your lender’s renewal offer and be done with it.
Strategically
Treat it as an opportunity to fit your mortgage to your current financial needs.
Going about it strategically is usually your best bet. That’s what we’ll dig into here.
How mortgage renewal works in Canada
BACK TO TOPFederally-regulated financial institutions — Canada’s biggest banks — are required to send you a renewal statement at least 21 days before your renewal date. The statement will include the terms of your new mortgage, including its new interest rate.
Some lenders will automatically renew your mortgage if you don’t respond to a renewal offer before the renewal date, but the terms may not benefit you. The renewal statement you receive will explain this.
You aren’t required to wait for a renewal statement. Three weeks doesn’t give you much time to weigh your options or negotiate.
Feel free to be proactive. Start looking into your renewal options four months before your renewal date. Some lenders may let you renew your mortgage up to six months early without charging you a prepayment penalty.
Renewal strategies to save time, money and stress:
Start early. Give yourself a few months to weigh your options and compare renewal rates.
Assess your financial needs. Don’t just choose the lowest rate. Determine if any other changes, like payment frequency or rate type, would help make the upcoming term more manageable.
Take advantage of prepayments. During your mortgage term, make regular pre-payments to reduce your principal before it’s time to renew.
Shop around and negotiate. Ensuring you get the lowest rate and best terms takes some effort, but it’s worth it.
Have your documents ready. Switching lenders at renewal means requalifying. You’ll need to share the same documents you needed when you first took out your mortgage.
Should I renew my mortgage with my current lender or a new one?
BACK TO TOPYou do not have to renew with your current lender. You have the freedom to switch lenders at renewal without being penalized.
Stay with your current lender if:
They offer the best combination of interest rate and other conditions.
Your finances have changed and you may not qualify for favourable terms at a different lender.
Switch lenders if:
The new lender offers a better rate and conditions.
You haven’t enjoyed being your current lender’s client.
If you decide to switch lenders, you will need to re-qualify, as the new lender has to ensure you can repay them. The time required for re-qualifying is another reason to start renewal early.
Switching may result in added costs, like discharge fees or home appraisal costs, but lenders often absorb these fees to get your business.
You will not need to pass another mortgage stress test if you switch lenders at renewal, so long as you aren’t making changes to the loan terms.
The stress test exemption explained
Under rules from the Office of the Superintendent of Financial Institutions (OSFI), you don’t need to undergo a mortgage stress test to switch lenders at renewal, so long as it is a straight switch.
Qualifies for an exemption: Keeping your exact remaining balance and amortization period intact.
Requires a stress test: Adding cash to your loan, extending your amortization period, or adding a HELOC (Home Equity Line of Credit).
Never accept your lender’s initial renewal offer. Here’s why
Your lender’s first renewal offer will likely include an interest rate much higher than what you’ll find at competing lenders.
The hope is that borrowers looking for a quick, easy renewal will simply accept the new terms and move on without crunching the numbers.
Accepting that initial offer is the path of least resistance. But if you wind up paying more for your mortgage than necessary, you’re basically setting your money on fire for the next one to five years — for no good reason.
Always reject the first renewal offer and ask for better terms. Tell your lender you plan on shopping around before making a final decision.
📞 A phone script for speaking to your lender about renewal
"Hello, my mortgage maturity date is [DATE]. My current renewal offer from you is [RATE]%, but I have secured a locked rate hold from [OTHER LENDER] for [LOWER RATE]%. I’d prefer to keep my business with [CURRENT LENDER], but I need you to match this rate to stay. Can you adjust my renewal offer to match?"
Navigating rate shock at renewal
BACK TO TOP“Rate shock” is what homeowners feel when their new mortgage rate creates a larger monthly payment. There are a few ways you can mitigate the impact:
Extend your amortization. If a straight renewal doesn’t seem affordable, you can refinance your mortgage and pay it off over a longer period of time. Your monthly payments will shrink but you’ll pay more in interest overall.
Make a lump-sum payment. You can pay off as much of your mortgage as you like at renewal without being charged a prepayment penalty. This will reduce the size of your mortgage and decrease your monthly payment amount.
Reduce other household costs. Examine your household budget and determine what cuts can be made. Personal spending habits and credit card use should also be looked at.
Negotiating your interest rate is the first step toward bringing down your mortgage costs at renewal. Negotiate with every lender you speak to, and be clear with all of them that you’re speaking with other lenders and mortgage brokers.
Three reasons to use a mortgage broker at renewal
Renewing vs. refinancing
BACK TO TOPRenewing | Refinancing | |
|---|---|---|
What it means | Signing a new mortgage contract. | Changing the terms of your mortgage contract. |
When does it happen? | At the end of term. | Anytime, so long as it makes financial sense. |
What can change? | The interest rate and possibly the rate type. | The interest rate, amortization period, payment frequency and/or rate type. |
Pre-payment penalties | Only if you renew earlier than your current contract allows. | Only if you refinance mid-term. You can refinance during the renewal period penalty-free. |
Stress test required? | Only if you switch lenders and refinance your loan. | Yes. |
Renewing your mortgage when your finances have changed
BACK TO TOPIf your income has decreased, your best option may be to stay with your current lender, who generally won’t need to re-qualify you.
Switching lenders and re-qualifying with a lower income (and a less appealing income-to-debt ratio) might result in renewing with an alternative lender that charges a higher interest rate.
If you project your income drop to be temporary — say you are finishing a degree or taking time off to care for a family member — it could make sense to opt for a shorter term in anticipation of qualifying for better terms in a few years.
Even if you stay with your current lender, you can still negotiate your rate.
If you’ve gone from earning wages to being self-employed, you may also find it easier to renew with your current lender. Renewing — and re-qualifying — at a new one may require two years of records showing consistent earnings.
If you might transition to self-employment in the future, think about the timing of your next renewal before you switch.
Maybe you’ve retired, swapping earnings for retirement income. Lenders will want to review any pensions and retirement account balances that you have. If you’re planning to both retire and renew your mortgage in the near future, speak to a mortgage expert (and a financial planner, ideally) to understand the implications.
Carrying additional debt can hurt your chances of qualifying for the best mortgage rates at renewal. But it’s not always a deal breaker if your income has kept up.
What matters most is your payment history. Staying on top of your debt should preserve your credit score and keep your overall credit report in good shape if you have to renew at a new lender.
Of course, a higher mortgage payment plus rising debt obligations can put you in a pinch. Using a mortgage renewal calculator can help you budget for your mortgage’s next term.
Best mortgage renewal rates in Canada
Compare offers from Canada’s top bank and non-bank mortgage lenders.
Frequently asked questions
When should I start renewing my mortgage?
You should always start the renewal process early. Three to four months gives you plenty of time to weigh your options and potentially lock in a rate.
Can I refinance my mortgage at renewal?
Yes. In fact, refinancing your mortgage at renewal is often ideal because you can change the terms of your mortgage without breaking your contract and incurring a prepayment penalty.
Can my mortgage renewal be denied?
In some cases, yes. If your income has taken a major hit or you had trouble keeping up with your mortgage payments, your lender might feel that renewing your mortgage is too much of a risk.
What can I do if my lender doesn’t want to renew my mortgage?
If your lender is a Big Six bank, you may have options in the alternative lending industry. Alternative lenders often work with borrowers who can’t qualify for funding elsewhere. Their lending qualifications aren’t as strict as the big banks’, but their interest rates are generally higher.
Do I need a lawyer at renewal?
Only if you’re changing lenders, which requires legal assistance to discharge the previous mortgage and register the new one. Your new lender might offer to pay for the legal fees involved.
TL;DR:
Mortgage renewal involves signing a new mortgage contract at the end of each term.
You don’t have to renew with your current lender.
You can — and should — negotiate your new mortgage rate.
Start the renewal process early and give yourself time to compare renewal offers.
DIVE EVEN DEEPER
Clay Jarvis
Clay Jarvis