Mortgage Basics

How to Renew Your Mortgage 101

How to Renew Your Mortgage 101
Written by
  • Tvine Donabedian
| 21 April 2023
Reviewed, 21 April 2023
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    When you first obtained your mortgage with a lender, you would have chosen a specific term. This can range anywhere from 6 months to 10 years though the 5-year term is the most common choice in Canada. At the end of this term, you must renew your mortgage unless you have paid off or plan to pay off the remaining balance in full. Typically you will have multiple terms over the life of your mortgage before it is fully paid off. At the end of each term, you must decide between a  mortgage renewal or paying off your mortgage. This arrangement allows you to renew your mortgage terms with your current lender or use it as an opportune time to explore other lenders’ offers.  

    Key Takeaways

    • The steps in the renewal process depend on whether you choose to renew with your current lender or transfer/switch to a new one.
    • Renewing with another lender follows the same process as when you first obtained a mortgage. 
    • Shopping around and re-negotiating during the renewal process will ensure you have found the most suitable solution for your next term. 

    What is a Mortgage Renewal?

    A mortgage renewal is a process of re-negotiating your interest rate and terms with either your current lender or a new one. This is the point in time when you will re-assess every aspect of your mortgage, including things like your lender, interest rates, payment frequencies, as well as the length you want to select for the new term. 

    Why Renew Your Mortgage?

    Having your mortgage renewed allows you to negotiate with your current lender or find a new one with terms that better suit your current needs. This is your chance to explore the potential to obtain a lower interest rate – especially if rates have decreased during your previous term. The renewal process can also be much more straightforward than getting approved for a new mortgage – meaning you won’t need to re-qualify when renewing with the same lender, avoiding additional paperwork required if you were to switch lenders. 

    Preparing to Renew Your Mortgage

    When your mortgage is coming up for renewal, lenders typically mail a renewal statement at least 21 business days before your current mortgage term ends. This regular renewal  statement contains information on the current state of your mortgage, like the remaining balance at renewal, the interest rate, your payment frequency, the term length, and any additional charges or fees that may apply. At the same time, you will receive renewal offers outlining what your current lender could offer you on a new term. 

    Planning ahead and exploring renewal options before you receive your renewal statement is better. Negotiating better rates and terms may take longer than the 21 business days you will have once you receive your renewal statement. Most lenders will allow you to renew early, between 90-180 days before your current terms end, without paying any penalties. 

    Planning will give you more time to review your needs and ensure you have a budget that allows for any increases to monthly payments – say, for example, if interest rates have increased since your last renewal. This is also the time to explore refinancing and consolidating debts that may have much higher interest rates into your mortgage. You should also review whether the services offered by your current lender still fit your needs since this is the perfect time to explore other lenders to see if they can offer more suitable terms and conditions. 

    Understand Your Current Mortgage Terms

    Understanding your current mortgage term will provide an understanding of what you previously committed to and the right solution. Use your current terms as a good starting point to help you better compare all the available mortgage options. This will assist you in finding the solution that best suits your needs as you prepare to lock in your mortgage for your next term. 

    Shop Around for a New Mortgage Rate and Term

    Since a lot can happen between mortgage terms, you may have different financial goals or be in a different financial position than you once were. Shopping around may allow you to find a much better interest rate than your current lender offers to renew, and other lenders may even offer better terms. 

    You should explore other features from your prospective lender beyond mortgage rates and terms. This includes restrictions on refinancing or porting your mortgage and the prepayment penalty for breaking or prepaying your mortgage. Even if you aren’t offered the most competitive mortgage rates, these options could add significant cost savings and flexibility if your financial situation changes. 

    Switching lenders means submitting a new mortgage application since every lender may have different qualifying and approval criteria. You will need to be approved by the new lender – meaning you will have to pass the stress test and meet their lending criteria. It’s important to note that you may also need to consider the costs of switching to a new lender, like getting a home appraisal. 

    Since most lenders will hold a rate for you – shopping around can also give you better leverage to negotiate with your lender. Ensure you get offers in writing, as your lender may want proof of what competitors offer you before negotiating or matching other offers.  

    Gather All Necessary Documentation

    You don’t need to re-qualify if you plan to renew with your current lender. This means you won’t need to provide any documentation – other than a signed copy of your mortgage renewal statement. In this case, you will need to select your new mortgage term and rate, then sign and return the renewal statement to your lender. 

    You must complete a new mortgage application with a new lender. This means you must gather and provide similar documents you provided when you first got your mortgage. This may include T4s, recent paystubs, letters of employment, a notice of assessment (NOA), and any other proof of income you may have (from freelance, rental income, investments, etc.). In addition, you will also need to have a copy of the mortgage renewal statement and proof of home ownership (like a property tax bill, which could also confirm the property taxes).   

    Negotiate Your New Mortgage Terms

    When you plan to renew your mortgage term, it’s best to negotiate for better rates and terms based on your current financial and life situation. You may qualify for better rates than what is quoted in your renewal letter just by asking. 

    By letting your lender know that you are shopping around and providing proof of any better offers you receive (be sure you get these in writing), you can have your current lender match or beat what you can get elsewhere to keep your business. 

    Finalizing Your Mortgage Renewal

    Once you’ve considered your financial goals, figured out your mortgage needs for the upcoming term, and done your due diligence shopping around and negotiating for the best rate and terms – it will be time to make a final decision. At this point, you will assess which lender offers you the most favourable terms and conditions, then decide to renew with your current lender or switch to a new one. 

    If you are sticking with your current lender, you will either sign and return the mortgage renewal letter or work with them for a better offer. If you have decided to switch lenders, this is where you will need to provide the additional paperwork that may be necessary and start the application process to obtain a mortgage with the new lender.

    Frequently Asked Questions

    When should I start thinking about my mortgage renewal?

    Getting a head start is best by considering your mortgage renewal as early as 120 days before your term ends. This will give you plenty of time to explore and better understand the options available at renewal and leave time for negotiations. 

    How early can you renew your mortgage?

    Every lender has a set amount of days before maturity that will allow you to renew early without penalty. Your mortgage contract will set out these terms, ranging from 90 to 180 days.

    What’s the difference between an early mortgage renewal and a regular renewal?

    There are two types of early renewals – the ones you do with your bank up to 90-180 days before your mortgage maturity date, allowing you to renew without penalty. The other type is when you transfer or switch to a new lender – where prepayment penalties will apply. Regular renewal is due on your maturity date, where you either renew with your lender or switch to a new one without a prepayment penalty.

    What’s the difference between a renewal and a refinance?

    A renewal is where you continue with your current amortization, whether you stay with your current lender or switch to a new one. A refinance is where you either increase your mortgage amount, extend the amortization, or add/remove a title holder from home (also known as a covenant change).

    Final Thoughts

    Whether you stay with your current lender or switch to a new one – the mortgage renewal process is the best time to find savings. Renewals allow you to reassess your financial needs and make changes that align with your current goals without paying additional fees for breaking your term early. Every mortgage term ends eventually, so maturity is the best opportunity to find cost savings and secure your most suitable mortgage solution.