Everything You Need to Know About Mortgage Renewals in Canada

Renewing your mortgage can be an overwhelming process, but it’s also a fantastic opportunity to reassess your financial situation. In today’s changing economic climate, understanding what a mortgage renewal means and how to make the most of it can save you a lot of money and stress. Whether you’re with a big bank like RBC or considering alternative lenders, it’s essential to know your options. In this guide, we’ll answer common questions and provide valuable insights into mortgage renewals, helping you navigate this crucial financial decision.

What is a Mortgage Renewal?

A mortgage renewal occurs when your current mortgage term ends, and you need to sign a new agreement to continue borrowing from your lender. Typically, mortgage terms in Canada last between 1 to 5 years. At the end of this term, if you still owe money on your home, you need to renew your mortgage for another term.

What Does Renewing a Mortgage Mean?

Renewing a mortgage simply means signing on for a new term with your current lender or a new lender. This gives you a chance to renegotiate the mortgage interest rate, payment schedule, and other terms to better suit your financial goals. It’s crucial to shop around for better deals because you may find more competitive rates that can save you thousands over the life of your mortgage.

Will Your Current Lender Offer you the Best Mortgage Rate?

In recent times, many Canadians have faced fluctuating interest rates due to economic instability. This makes it even more important to evaluate the available options when it’s time to renew your mortgage. Banks often send a renewal offer, but it’s not always the best deal available. Taking the time to compare rates or consult a mortgage broker can lead to significant savings.

Can a Bank Deny A Mortgage Renewal in Canada?

Yes, your bank can deny a mortgage renewal if you have missed payments or if your financial situation has changed significantly. For example, if your credit score has dropped or your income has decreased, the bank may view you as a higher risk. However, if you’ve been making regular payments and your financial status is stable, a denial is unlikely and very rare.

Is It a Good Idea to Renew Your Mortgage Early?

Renewing your mortgage early can sometimes be beneficial, especially if interest rates are on the rise. However, it’s important to be aware of potential penalties for early renewal. Some lenders charge fees for breaking your current term early, so it’s a good idea to weigh these costs against the potential savings from a lower interest rate. With most banks and lenders you can renew your mortgage as early as 4 months in advance.  One Bank in particular will allow renewals up to 6 months in advance.  Alternative lenders typically allow up to 3 months in advance.

Will My Mortgage Payment Go Up When I Renew?

Whether your mortgage payment goes up or down depends on the mortgage rates at the time of renewal. If rates have increased, your payments will likely go up unless you extend your amortization period to keep payments manageable. Conversely, if rates have dropped, you could end up paying less each month.

Mortgage Renewal Checklist

1. Start Early: Begin thinking about your renewal at least 120 days before your mortgage term ends. Many lenders allow you to lock in a new rate up to 120 days in advance without penalties.

2. Shop Around: Don’t just accept the first offer from your current lender. Compare offers from other lenders and brokers to find a better rate.

3. Negotiate the Terms: Renewal is your chance to renegotiate terms. You may want to change your payment schedule, adjust the amortization period, or switch from a variable rate to a fixed rate.

4. Check Your Financial Situation: Review your financial goals—are you looking to pay off your mortgage faster, or do you need more flexibility with lower payments?

5. Seek Professional Advice: Consulting with a mortgage broker can help you find the best deal, as they have access to a wide range of products and lenders.

Common Mistakes to Avoid

• Not Shopping Around: Accepting the bank’s initial renewal offer could cost you thousands in the long run.

• Ignoring Prepayment Privileges: You might miss the chance to make lump-sum payments or increase your payments without penalty, which can significantly reduce your mortgage balance.

Frequently Asked Questions About Mortgage Renewals

What Happens if You Don’t Renew Your Mortgage?

Your lender has the right to renew your mortgage into a product that they see fit if you don’t make a choice.  This will typically at a higher rate and into a product that can be converted into something else. It’s important to contact your lender and discuss your renewal options to avoid any surprises.

Can You Be Turned Down for a Mortgage Renewal?

Yes, if your financial situation has significantly worsened, or if you have missed mortgage payments, a lender may choose not to renew your mortgage. However, alternative lenders or brokers might still offer you a renewal option, possibly at a higher rate. Most lenders will check your credit on renewal. You won’t need to requalify for the mortgage. 

Does Renewing a Mortgage Affect Your Credit Score?

Typically, renewing your mortgage doesn’t directly impact your credit score. However, if you switch lenders, a credit check will be performed, which could slightly affect your score.

How Long Does It Take to Renew a Mortgage?

The renewal process usually takes a few weeks, but it’s best to start early to allow time for negotiations or shopping around for better rates.

Can I Borrow More Money When I Renew My Mortgage?

Yes, you can potentially borrow more money when you renew your mortgage. This is known as a refinance or “taking equity out” of your home. However, this will depend on your home’s current value and your financial standing.

Renewing your mortgage is a critical step in your financial journey, and taking the time to understand the process can lead to significant savings and financial security. Whether you’re looking to lower your interest rate, borrow more funds, or adjust your payment terms, it’s important to start early, shop around, and get expert advice.

If you’re approaching your mortgage renewal and want to ensure you get the best possible deal, reach out today. Our team of mortgage professionals is here to help guide you through the renewal process and secure the most favorable terms for your financial future.