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Mortgage renewal: what should I do?

Posted on 3 November 2023

Written by Chris Galea

For most homeowners in Canada, the end of a mortgage term is an important financial milestone. Provided you still owe a balance on your mortgage, you will need to renew your mortgage at the end of your mortgage term. It presents an opportunity to reassess your mortgage, look into your options, and ensure that you are making the best decisions for your financial circumstances and goals. While your current mortgage lender will send you a simple renewal slip in the mail for you to return, you should ensure you are reviewing your options first and are getting the most from your mortgage. Mortgage renewal in Canada is an important phase in owning your own home, and knowing how you can save money and secure the right mortgage for you is critical. In this article, we explain what mortgage renewal means, and what you should do when your term is coming to an end.

What is mortgage renewal in Canada?

When you take on a mortgage in Canada, you will usually be given a set term. Often, this ranges from one to five years. When that term is up, you will be due a mortgage renewal. When you reach this point, you have a few different options:

Renew your mortgage with your current lender

You might wish to renew your mortgage with your existing lender. Often this is the easiest choice – many homeowners might do this without looking into their other options. The issue with this option is that often it is not the most cost effective, and you could realizeconsiderable saving by switching to another lender.

Switch your lender

When it comes to mortgage renewal time, you are free to look into mortgage offers from other lenders. By looking into other options and shopping around, you could find more favourable terms for your mortgage, and ideally a lower interest rate that could save you money.

Pay off your mortgage

If you have the funds, you might choose to repay your mortgage in its entirety when your renewal comes up. Although this is a less common option, it does mean that you secure full ownership of your property once and for all.

Tips for mortgage renewal

There are some important tips you should take into consideration when it comes to mortgage renewal in Canada:

  • Start the process early. It is a good idea to make your life less stressful by beginning to look at potential mortgages up to four months before your mortgage term is due to end. Some mortgages even enable you to renew early without having to pay a penalty. If not, you can still begin researching your options and finding which lenders are offering which rates, options, and terms. This way, you will be well prepared and informed to negotiate when you are ready to renew your mortgage.
  • Review your financial circumstances. You should look at your finances and your goals. After all, a lot can happen across a mortgage term. You may have lost or gained income, or had changes in your life circumstances. Has anything changed significantly since you took on your mortgage? Review your income, expenses, credit score, and your financial goals for the future. If you are thinking about moving home in the next 5 years, you should factor this into your decision.
  • Be ready to renew in the last 30 days of your current mortgage. Legally, your lender has to send you a mortgage renewal statement at least 3 weeks before your current term is up. Usually they will encourage you to renew with them, but ensure you have done sufficient research to know whether or not it is the best mortgage rate for you. If not, you might want to try and negotiate with them.
  • Compare mortgage products. If you are considering switching lenders, you might want to consider the things you want to gain from a new mortgage. These include the following:
    • Your monthly budget – can you increase your mortgage payment at all to pay off your principal sooner?
    • Any bonuses or inheritance you might receive to put towards your mortgage. If you think you might, you should investigate the lump sum prepayment options of a new mortgage?
    • Whether or not you might be able to repay your mortgage early – if so, check out the prepayment penalties of any new mortgage product
    • Whether or not you might sell your home or move in the next 5 years. If so, you might want to choose a portable mortgage
  • When exploring new mortgage products, you should shop around. Get quotes from lots of different lenders, and compare the mortgage terms, conditions, and interest rates before making a decision. You might want to speak to a mortgage broker to help you.
  • Understand the terms of your mortgage. When looking at different products, ensure you carefully review the terms and conditions. Think about details like whether it is a fixed or variable rate, how you are affected by prepayment options, and the amortization period. Carefully review any documents and contracts related to your mortgage renewal, and ensure you understand all of the terms before signing any new agreement.
  • Negotiate with lenders. Do not be afraid to try and negotiate with either your current lender or any potential new lenders. Many elements of a mortgage – including the interest rate and repayment terms – might be negotiable, and you do not know until you ask.
  • Be mindful of penalties. If you decide to switch to a new lender before your mortgage term ends, you might face prepayment penalties. You should make sure to check these costs, understand them, and factor them into your decision making before committing to a new mortgage.
  • Make a decision. Ultimately, your decision will come down to who is offering the best mortgage rate and product. Switching providers often requires more administration, but it will usually give you a better rate. Do not forget that with a new lender, you will need to submit a new mortgage application as the lending criteria is likely quite different to that of your current lender. You might also need to pay additional fees.

What if I am struggling to pay my mortgage?

If you are finding difficulty making your monthly mortgage payments, you are far from alone. With multiple interest rate hikes over the past year, and a rising cost of living, this is an increasingly common situation for many Canadian homeowners. Firstly, it is important to not panic. No matter how bad you might feel your situation is, there is always a solution. You should contact your mortgage lender as soon as you think you might struggle to make a payment. Communication is key, and lenders will do their best to help if you are transparent about your situation and you give them warning. They can offer some solutions like temporary relief on interest payments, or even allowing you a mortgage payment holiday. Although not long term solutions, these might help you to get back on track. If you need more support – like a substantial decrease or even elimination of your unsecured debt – you should book a free consultation with a Licensed Insolvency Trustee. Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief, and so they are well placed to review your circumstances and advise you on your options.

Do mortgages automatically renew Canada?

In Canada, mortgages do not automatically renew at the end of their term. Lenders must legally inform you that your mortgage term is coming to an end in order to allow you to make a decision about your next step. If you do not wish to pay off your mortgage or to switch lenders, you can choose to renew your mortgage with your current lender. This is much simpler than switching lenders. Your current lender will typically mail you a form to complete if you wish for a renewal, which you just need to sign and return. You will continue with the same lender and terms, but the interest rate may well be different depending on the market rates. If you do not take any action, your mortgage will automatically switch to a month to month or ‘lender’s standard rate’ arrangement. Often, this comes with a high interest rate, and so you are best off being proactive and making an informed decision about your mortgage renewal when your term is coming to an end.

Should I renew my mortgage early in Canada?

Whether or not you should renew your mortgage early in Canada is dependent on your unique financial circumstances, your current mortgage, and the associated interest rate. You should think about the following before making a decision:

  • Current interest rate – if you can secure a lower interest rate by renewing early, it is likely a good idea
  • Mortgage term – if you are near the end of your term and interest rates are favorable, early renewal might not be necessary
  • Penalties – you should review your mortgage contract and see if you will incur any penalties for renewing early
  • Financial goals – if you plan to stay in your home for a long time, securing a lower interest rate early could save you a lot over the duration of your mortgage
  • Rate predictions – if economic forecasts suggest that interest rates will increase significantly in the future, early renewal at a lower rate could be a good move

Ultimately, whether or not you decide to renew your mortgage early in Canada depends on a number of factors. You should weigh up the potential interest you could save against any penalties or fees incurred for renewing early. Ensure you make an informed decision by comparing information from different lenders and seeking out expert advice and guidance.

Got concerns about your mortgage renewal, or feeling worried about making your mortgage payments? Book a free consultation with Spergel for advice on mortgage debt relief. We will review your financial circumstances and help to provide guidance and information on your available options. We have helped over 100,000 Canadians gain debt relief, and we are here to help you too.

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Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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