Mortgage renewal

• A mortgage renewal happens at or within 120 days at the end of your mortgage term
• If you don’t take action when you get a renewal letter, the mortgage will automatically be renewed
• Upon renewal, it is important to renegotiate your interest rate, mortgage term, payment frequency and other related elements
• Switching to a new lender may trigger additional fees, but may result in more savings

When you get a mortgage, you sign a contract that is set for a specific length of time. Unless you are able to pay it off at the end of that term, it will likely come up for renewal at the end of the term.

Most mortgages in Canada are set up in terms of 3-5 years or more at a specific interest rate; the amortization that comes along with it is usually set to 25 years, with set monthly, bi-weekly, or weekly payments that combine principal and interest charges. The idea is that the mortgage is designed to be paid off within the amortization period.

At or near the end of the mortgage term, you will need to negotiate a new term, with a new interest rate and payment frequency. It’s important to understand your financial needs. See if there are any renewal incentives such as better mortgage interest rates, such as changing to a variable or fixed mortgage or changing to another lender.

If interest rates are changing or your financial needs are different, you will want to get the best advice possible regarding choosing a lender, mortgage rate, amortization or payment frequency. The mortgage experts at Mortgage Maestro are here to help.

If you are not at the end of the amortization period or haven’t paid off your mortgage when the term is over, your mortgage will be up for renewal. The term of a mortgage in Canada can last from a few months to five years or more. There are shorter-term mortgages, longer-term mortgages, and convertible term mortgages.

• Less than 5 years
• Have the option of a fixed or variable interest rate
• Usually have lower interest rates

• Longer than 5 years
• Usually restricted to a fixed rate of interest
• Are used to lock in a favourable interest rate for a longer time period
• Have heavy prepayment penalties if you sell your home within the first 5 years

• These are mortgages that can be extended to a longer term
• Often known as “blend and extend” mortgages, combine mortgage rates upon conversion to take advantage of a changing loan marketplace

As long as you are in good standing with your lender, it is easy to renew your mortgage. To be in a favourable position to get a good interest rate, ensuring payments are made on time is the key. It is also a good idea to shop around to see if you can get a better term, rate or total amount.

Mortgage renewal statements, from lenders such as the banks, are usually sent 21 days before the end of your term.

It will show you:

• how much is left on your mortgage
• your current interest rate (which may change when you renew)
• the term and frequency of payment, amortization and any fees or charges that are associated with renewal

Some lenders will offer automatic renewal options, so that if you don’t ask for a renewal, they will set up the next term based on your previous mortgage term, but the interest rate will change based on the current bank rates. Others have early renewal options that allow you to renew four to six months before the mortgage term is up without paying a penalty. If you switch your mortgage or try to renew before the early renewal period, you may have to pay mortgage prepayment penalties.

If your financial state has worsened during the mortgage term, the lender has the right to decide not to renew, depending on the risk. If the lender decides not to renew your mortgage, they will have to tell you ahead of time so that you are able to get a new alternative mortgage lender.

When your mortgage is up for renewal, you can stay with the current lender or switch to a new one, depending on your financial needs and the deal they can get on interest rates and term.

If you switch lenders, there will be fees involved, such as the new mortgage application, setup fees, property assessment and more. If you are going to switch, be sure to find out the costs so you can see if it is worth it. It is always better to switch at the end of the term or in the renewal period rather than breaking your mortgage in the middle. If you choose to break a closed mortgage, there will be prepayment penalties.

Working with your current lender is easier, since you will not have the same fees and can renegotiate the terms and interest rates that they offer. Sometimes a lender will adjust their offer to keep your business.

Whenever you apply for a new mortgage from a bank, you will need to pass the “stress test” since you are replacing your mortgage with a new one. The stress test is there to see what you can afford, and to assure new lenders that you are a good risk.

When you are ready to renew, it is important to review your financial goals and ensure you get the best deal that suits your life. For example, if you renew for a 5-year mortgage, you want to be sure of your future plans, such as selling your home. Some lenders will let you transfer and existing mortgage to a new address, but if you change cities that is much more difficult. Be sure to review your budget to see what you can afford, look at your goals, and see what you need for money for renovations or other needs connected to your home.

It is also a good idea to start shopping around before the renewal period to see what interest rates you can get. If you understand the market well, it is much easier to negotiate the next rate of interest. Comparing mortgage offerings is a key to protect your financial future and reduce the cost of borrowing.

Other elements, such as amortization, payment frequency, mortgage amounts and the possibility of mortgage insurance are things to keep in mind. Give yourself enough time if you are switching lenders since there are documents you will need to provide, such as proof of income, home ownership, mortgage renewal letters and property insurance.

Knowing whether a fixed-rate or variable-rate is a better fit for your goals will also be important.

Mortgage renewals are different than refinancing, since with a refinance, you are borrowing more money. With a refinance, you use the equity in your home to get more money on top of your current mortgage. This results in a new mortgage for a bigger sum. A renewal is only possible near the end of your term and it is for the remainder of the money owed.

Mortgage Maestro simplifies the homeownership journey. With years of experience, unbiased financial advice, and a large pool of lenders, we are able to offer very competitive rates and customize mortgage products based on your needs. If your mortgage is up for renewal, contact us and we can work with you to reassess your financial needs and goals and guide you through the process.

Apply online today, connect with us and get the renewal process moving forward.

• 5 surprises to avoid when switching your mortgage before your term ends
• The Canadian mortgage stress test explained