Renewing your mortgage: Essential tips and strategies

Is it almost time to renew your mortgage? Whether this is your first renewal or it’s been a while since you’ve been through the process, you probably have a lot of questions about how this works and what decisions you need to make about the future of your mortgage.

There's a lot to consider. Explore our guide to everything you need to know about a mortgage renewal in Canada.

First, the basics: What is a mortgage renewal?

When you get a mortgage, you agree to a contract for a certain amount of time. This is known as your mortgage term. Most people choose three- to five-year terms, but terms can also range from just a few months to up to 10 years.^1,2

Until you fully pay off your loan, you have to renew your mortgage at the end of each term. Homeowners often go through multiple renewals over the amortization period — meaning the length of time it takes to fully repay the mortgage.

The mortgage renewal process can feel stressful, especially if you have to renew at a higher rate. But, on the positive side, your renewal is a time when you have the opportunity to change the terms of your loan to better suit your needs. For instance, you can switch from a fixed to a variable rate mortgage, change your payment frequency, choose a new lender or refinance to access equity built up in your home.

Understanding the mortgage renewal process is important because it's your chance to make changes. 

Renewing a mortgage isn't the same as refinancing. A mortgage renewal happens at the end of your current term, while refinancing can typically be done at any time. However, keep in mind that refinancing before your term ends may result in prepayment charges.

Let's take a look at how a mortgage renewal differs from a refinance.

Before you break your mortgage mid-term to refinance, know that the prepayment charges can be hefty — as in, thousands of dollars.³ It's a good idea to calculate how much you might save with a refinance versus how much you have to spend to break your mortgage.

Waiting until your mortgage is up for renewal can help you avoid the prepayment charges, but you'll still have to pay refinance fees, which can include legal, appraisal and title fees. 

Unless you're paying off your mortgage in full, you must renew your mortgage when your term is up.

For instance, if you purchased a home in 2021 with a five-year term, your mortgage is up for renewal in 2026. If you have a mortgage with a federally regulated financial institution, like a bank, your lender is required to provide a renewal statement.

Your mortgage renewal statement includes details about your current mortgage term that's up for renewal and information about what you're eligible for at renewal.

Information about your current mortgage includes your:

• Balance at renewal
• Maturity date
• Current interest rate
• Payment frequency
• Mortgage term

Your renewal statement also includes the various terms that you're eligible for at renewal.

You should receive your renewal statement at least 21 days before the end of your existing mortgage term.¹ But you don't want to wait until you receive it to start planning for your renewal. It’s important to start having renewal conversations with your lender (and potentially comparing with other lenders) a few months before your maturity date. This allows you to better understand your renewal options so you can make a more informed decision. 

To prepare for your renewal, assess your current mortgage. Think about what's working or if there's anything you'd like to change.

Some questions to help get you started:

Your answers can help you determine what mortgage features are most important for your mortgage renewal and for your short- and long-term financial goals.

If you purchased your home in 2021 when mortgage rates were at a historical low, you can expect to renew at a higher rate in 2026.³ This will result in higher monthly payments.

If you're worried about increased payments, you can try to negotiate a better rate, extend your amortization period by refinancing, or make a lump sum prepayment at maturity to help lower your mortgage payment for the new term.

Keep in mind that if you choose to extend your amortization period to reduce your payment amount, you'll also increase the amount of interest you pay over time.

When renewing your mortgage, you have options. You can:

• Renew with your current lender: If your current lender agrees to renew your mortgage and you're happy with the terms and conditions they’re offering, you can stay put. You’ll still want to have a conversation with your lender to explore your renewal options and ensure you’re making an informed decision that aligns with your financial goals.
• Switch to a new lender: If you’re not satisfied with the mortgage features and terms that your current lender is offering at renewal, you can look for a new mortgage lender.

Renewal can be a good time to consider switching to another lender, as you can avoid costly prepayment charges associated with breaking your contract midterm.

To switch lenders, you'll need to meet the new lender's qualification criteria, and there are fees associated, such as a discharge, legal and appraisal fees. It's important to weight your costs with potential savings to determine if it's worth switching lenders.

There are situations when your current lender may choose not to renew your mortgage. For instance, if you've missed mortgage payments over your current term. In this case, you'll have to shop around for a new lender. 

Before you start the mortgage renewal journey, consider your goals. To help determine the right step forward, ask yourself the following questions:

• What are your upcoming plans? How will they affect your finances?
• Have your finances changed since your last mortgage renewal?
• How have the current economic conditions impacted your spending habits?
• Do you have additional borrowing needs, such as extra cash for renovations, debt consolidation or other major expenses?
• Are you considering selling your home?  If so, do you plan to buy another home at the same time?

Once you’ve given some thought to your goals, there are several steps involved in the mortgage renewal process.

Start researching and exploring your renewal options months before your maturity date. Even if you want to stay with your current lender, knowing what else is out there can help you feel confident when discussing your mortgage renewal options.

When exploring your renewal options, in addition to mortgage features, think about the type of mortgage you want for your next term. For instance, consider factors like:

Fixed vs. variable: With a fixed-rate mortgage, the interest rate and payment remain stable the entire term. With a variable-rate mortgage, your interest rate will fluctuate with prime rate changes throughout the term. This can also result in adjustments to your mortgage payment as the prime rate changes.

If you're looking for payment stability, a variable-rate mortgage may not be the right solution for you, even if the interest rate is lower at the time of your renewal.

Open vs. closed: An open mortgage often comes with a higher interest rate but allows you to put extra money toward your mortgage to pay it off sooner. A closed mortgage typically has a lower rate but has more rules and limitations around how much extra money you can put toward your mortgage each year.

Unless you’re planning to make significant prepayments above your prepayment allowances, it’s best to choose a closed-term mortgage. Even if you’re planning to move in the near future, you can still choose a closed-term mortgage if you have a porting feature. A porting feature allows you to transfer your existing mortgage terms to a new property if you move, helping you avoid prepayment penalties.

If you want to stay with your current lender, use the quotes you’ve collected from your market research in preparation for your renewal conversations to negotiate the best rate.

Once you've negotiated a rate and received a final offer, review the fine print of your terms and conditions to ensure you understand your rate and terms. Then, you can relax until your next mortgage renewal.

If you can’t negotiate favourable terms with your current lender, and decide to go with a new lender, you’ll need to submit a mortgage switch application to see if you meet the new lender’s qualification standards.

You can expect a process similar to when you applied for your original mortgage, but the new lender might use different qualification criteria. Most lenders will ask for the following information on a mortgage application:

• Personal information: Documents identifying who you are, including a photo ID and proof of address.
• Income and employment information and verification: This can include pay stubs, tax forms, pay slips or letters of employment.
• Credit approval: Lenders may want to see proof of assets and liabilities as well as bank or personal references.

Unlike your first mortgage application, you might not have to go through another mortgage stress test. The Office of the Superintendent of Financial Institutions (OFSI) doesn't require the stress test for homeowners who switch their uninsured mortgage to a new lender, as long as the amortization and mortgage amount stay the same.⁵

But if you want to change your amortization period or mortgage amount, you'll have to pass the stress test again. 

Whether you decide to stay with your current lender or make a switch, take advantage of your renewal and negotiate new terms and the best interest rate. Here are a few tips for how to negotiate better terms for your mortgage renewal. 

If your current lender sends a renewal contract, this is a good time to re-evaluate your current financial situation and get the mortgage advice needed to help you choose the best mortgage terms and features that are right for you. 

Research other lenders and their mortgage offers. If you find a better offer, you can consider switching lenders or use this to discuss better terms with your current mortgage lender.

Remember, while rate is an important consideration when making your renewal decision, there are other important factors to consider. Also consider flexible mortgage features like prepayment privileges, access to your home’s equity and the option to port your mortgage. 

Mortgage specialists can offer great mortgage advice and can help you find the best terms for your current needs and consider your short- and long-term goals.

By starting early, you give yourself the time to explore your options, understand your needs, and get expert advice — without the pressure of a looming deadline.

Many lenders allow you to renew your mortgage up to six months before the term expires without a prepayment charge. By renewing early, there's potential to save money if interest rates go up.

Ready to renew your mortgage?

Don't be intimidated by the mortgage renewal process. Instead, consider it an opportunity to assess your current financial situation and make the changes you need to meet your financial goals faster.

Remember, don't procrastinate. Doing your research months ahead of time allows you to explore your renewal options, and make an informed renewal decision when the time comes.