Navigating Your Mortgage Renewal

Mar 13, 2024By Snezhana Todorova
Snezhana Todorova

It is no secret that a lot of people took advantage of the attractive interest rates back in 2020/2021 and locked in extremely low interests with very manageable payments.

But what happens when your mortgage term ends? 

At the end of the term, your mortgage becomes due and payable in full. If you are one of few lucky people to win the lottery or receive a large inheritance, good for you - you can pay off the mortgage in full with no penalty at all (assuming you make the payment on the maturity date).

However, for the rest of us - we are left with the only option - renewing the mortgage for another mortgage term. But what happens when the rate you are offered from your current lender is much higher than your existing rate? You might be faced with the so- called Payment Shock: when your existing mortgage payment will be increased drastically and may negatively impact your monthly cash flow.

Here is when my expertise comes to shine and I offer valuable advice and options to make the mortgage work for you.

woman looking at the phone

Did you know that 51% of Canadian homeowners don’t plan on changing lenders when their mortgage comes up for renewal — and 9% weren't even aware that they could switch lenders to get a better rate? 

Renegotiating your mortgage at renewal time is an excellent way to save money and ensure that you have the best mortgage product for your financial situation. 

There are 3 options to consider when your mortgage term is ending:

1. Renew with the same lender
2. Switch/Transfer to another lender
3. Refinance the mortgage.

What is Mortgage Renewal?

Your mortgage is up for renewal when you approach your maturity date (also known as your renewal date). This is when your current mortgage contract ends and your mortgage lender will then present you with your options to renew the mortgage with them.

As the name implies, a mortgage renewal is simply renewing your mortgage with your current lender. But here's the catch: don't just sign on the dotted line without checking out other options first. 

We're all busy, and it's tempting to just send the form back to your current lender without a second thought. It's quick, it's easy, and it seems like the simplest thing to do. But here's the deal: it could end up costing you a lot more than you realize.

That's why it's super important to take a good look at your options. You want to make sure you're getting a really good deal when you renew with your current lender. They might offer you a decent rate, but guess what? You could actually save a ton of money or have a lower payment by switching to a different lender.

What is Mortgage Switch/Transfer?

There is a good chance that you’ll be able to find a lower rate with another lender. This is where you would switch your current mortgage balance and remaining amortization over to another lender. This is also known as a mortgage transfer.

A title insurance company such as First Canadian Title (FCT)  facilitates the transfer of funds from one lender to the other. The costs are generally picked up by the new lender.

For most mortgage switches, the only fee involved is the discharge fee from your current lender. It can range anywhere from $200 to $400 depending on your province. 

While there are a small number of lenders who will cover the discharge fee, most will not. The fee would get added to the new mortgage, so you shouldn’t have any out of pocket costs at closing.

The maximum amortization will be what you have remaining based on years passed on the calendar. For example, if you started with 25 years and five years have passed, then your maximum amortization will be 20 years.

If you made use of your prepayment privileges or were on an accelerated biweekly or weekly payment schedule, then your effective amortization would reflect fewer years remaining. You can either go with the lower amortization or you can move it back up based on years passed. 

On a mortgage switch, you can always reduce your amortization but cannot increase it, nor can you increase your mortgage balance. However,  there are some exceptions to this rule depending on your mortgage charge - whether the mortgage was registered as a standard or collateral charge. If you have a HELOC (Home Equity Line of Credit) attached to your mortgage, then your mortgage is most likely a collateral charge. If you have any debts outside your mortgage/HELOC, they can be transferred to the HELOC, and paid out during the mortgage switch.

What is Mortgage Refinance?

Refinancing allows you to replace your existing mortgage agreement with a new agreement – this means you’ll have a new interest rate, term length, and even a longer amortization.

If you want to increase your amortization up to 30 years to reduce your payments, or if you are looking to take equity out of the property, then mortgage refinancing would be your best options.

While the process is similar to a mortgage switch, it falls into a different pricing category. This means a slightly higher rate may apply. 

However, if your objective is to have a lower monthly payment and better cash flow - mortgage refinance will help you achieve your goal.

Many people decide to refinance for a simple reason: to combine their debts. This means bringing together different debts, like paying for education or renovating a home, into one. Sometimes, you might have debts with high interest rates that make it hard to manage your money. Refinancing helps by combining these debts into one with a lower interest rate and a single, easier-to-manage monthly payment.

In conclusion, exploring your options for mortgage renewal is a smart financial move that can help you save money, access equity, and improve your overall financial situation. 

Take some time to check out different mortgage options and reach out to me ahead of time. That way, I can help you find the right mortgage for what you need now and for the future.

If you know anyone whose mortgage is coming up for renewal - feel free to share this blog post with them.

If you are ready to discuss your mortgage renewal options, click here to book a call with me.