A mortgage renewal can be easy to overlook.
Your lender sends you an offer, you see a new interest rate and payment, and signing the renewal may seem like the simplest option.
But a mortgage renewal is also an opportunity to review whether your mortgage still fits your finances and your plans.
Your income may have changed. Your home's value may have changed. You may have accumulated other debts, built substantial equity, or be considering moving in the next few years.
Before signing your lender's renewal offer, it can be worthwhile to review the entire mortgage rather than focusing only on the rate.
What Is a Mortgage Renewal?
Most Canadian mortgages have a mortgage term that is shorter than the full amortization period.
For example, you might have a 25-year amortization but choose a three-year or five-year mortgage term.
When that term ends and there is still a balance owing, the mortgage needs to be renewed, switched to another lender, refinanced, or paid out.
Your existing lender will typically provide a renewal offer with a new interest rate and mortgage term.
You are not necessarily required to accept that first offer.
When Should You Start Reviewing Your Mortgage Renewal?
It is generally helpful to start reviewing your mortgage several months before the maturity date rather than waiting until the final few days.
Starting earlier gives you time to:
- Review your current lender's offer
- Compare available mortgage options
- Consider fixed versus variable rates
- Review your remaining amortization
- Determine whether you need additional flexibility
- Consider whether accessing equity is part of your plans
- Complete any documentation required if switching lenders
The goal is to avoid making an important mortgage decision under unnecessary time pressure.
Should You Automatically Accept Your Lender's Renewal Offer?
Not necessarily.
Your existing lender's offer may be competitive and may ultimately be the right option.
However, accepting it without reviewing alternatives means you may not know whether another mortgage structure could better fit your situation.
When comparing renewal options, consider more than just the advertised interest rate.
What Should You Compare Besides the Interest Rate?
Interest rate is important, but it is only one part of a mortgage.
Other features may include:
- Mortgage payment
- Fixed or variable rate
- Mortgage term
- Remaining amortization
- Prepayment privileges
- Portability
- Penalty calculations
- Ability to make additional payments
- Restrictions associated with the mortgage
- Home equity options
- Overall flexibility
A slightly lower rate does not automatically make one mortgage better for every borrower.
The mortgage should fit what you expect to do during the next term.
Should You Choose a Fixed or Variable Rate at Renewal?
There is no single answer that works for every homeowner.
A fixed mortgage generally provides a known interest rate and predictable payment structure during the term.
A variable mortgage may change as the lender's prime rate changes, depending on the mortgage product.
When comparing the two, consider:
- Your comfort with payment or interest-rate changes
- How long you expect to keep the mortgage
- Your plans to move
- Your need for flexibility
- Potential penalties
- Your overall household budget
The decision should be based on the mortgage structure and your circumstances, not simply a prediction about where rates might go.
Should You Review Your Remaining Amortization?
Yes.
Your amortization affects both your required mortgage payment and how quickly the mortgage is paid down.
At renewal, it can be useful to review whether your current amortization still fits your goals.
Some homeowners want to accelerate repayment.
Others may be more focused on managing monthly cash flow.
Any changes to the mortgage structure are subject to lender qualification and product requirements.
What If You Have Other High-Interest Debt?
Renewal can also be an appropriate time to review your overall financial picture.
If you have accumulated credit-card balances, unsecured lines of credit, loans, or other higher-interest obligations, you may want to understand whether using available home equity could improve your monthly cash flow or simplify your payments.
This would generally involve refinancing rather than a simple mortgage renewal and may involve additional costs or qualification requirements.
Do not assume that debt consolidation is automatically beneficial.
Can You Switch Mortgage Lenders at Renewal?
Yes, subject to qualification and lender requirements.
Homeowners are generally able to explore transferring or switching their mortgage to another lender when the existing mortgage term ends.
A new lender will need to review and approve the application.
Depending on the transaction, documentation may include:
- Income verification
- Property information
- Current mortgage statement
- Identification
- Credit review
- Other supporting documents required by the lender
There may also be legal, appraisal, discharge or other transaction costs depending on the mortgage and lender.
These should be considered when comparing options.
What If You Want to Access Additional Funds?
If you want to increase the mortgage balance to access home equity, that is generally considered a refinance rather than a simple renewal or switch.
Reasons homeowners may consider accessing equity include:
- Consolidating higher-interest debt
- Renovations
- Major expenses
- Investment or financial planning purposes
Qualification, available equity and lender requirements apply.
Questions to Ask Before Signing Your Renewal
Before signing your lender's renewal offer, consider asking:
- Is this rate competitive for my situation?
- Is the payment comfortable for my current budget?
- Does the remaining amortization still make sense?
- Do I expect to move during the next mortgage term?
- Are prepayment privileges important to me?
- How are penalties calculated?
- Do I need access to home equity?
- Has my financial situation changed since I arranged my last mortgage?
- Would another lender or mortgage structure be worth considering?
A renewal should support what you want your mortgage to accomplish over the next several years.
