As the end of your mortgage term approaches, you might be wondering whether early mortgage renewal is a good idea. Ready to explore how this works? We detail the process, hidden costs, and key considerations to help you determine if this is the right move for you.
What does it mean to renew your mortgage?
When you secure a mortgage from a lender, your mortgage contract (including the type of interest rate and payment schedule) is valid for a specific period known as the mortgage term. The mortgage term can span from several months to five years or even longer.
Unless you pay off the remaining balance entirely, you’ll need to renew your mortgage at the end of each term. At this point, your mortgage is renewed, and the bank typically issues a renewal statement outlining new terms and interest rates. In Canada, it is normal to go through multiple terms to fully repay a mortgage.
Can you renew your mortgage early?
Yes, you can renew your mortgage early, as most lenders allow penalty-free renewal up to 120 days before your current term ends, even though they’re only legally required to notify you 21 days prior. This is known as an early mortgage renewal.
Remember, mortgage renewal time is an opportunity to compare rates and terms with other lenders. Consulting a mortgage specialist can help you navigate early renewal decisions and ensure you make the best choice for your situation.
How early can you renew your mortgage?
Depending on your lender, you may be able to renew your mortgage as early as 120-180 days from your mortgage maturity date. However, you may need to confirm with your lender if you’re eligible to renew early without penalty.
Is there a penalty for renewing your mortgage early?
Provided you stay with the same lender and renew during the designated period, the renewal will be penalty-free. Penalties can apply if:
- You try to renew before the designated renewal period (considered as breaking your mortgage term).
- You switch lenders before the end of your term.
- You pay more than the additional amount allowed toward your mortgage (unless in an open mortgage), which may result in a prepayment charge. Making a lump sum payment beyond the permitted limit in a closed mortgage can also trigger a prepayment charge.
What happens if your mortgage term expires?
If you let your mortgage term lapse, your lender will automatically renew your mortgage. However, it is unlikely that you’ll get the best interest rates and terms in the market, unless you switch lenders or negotiate during the renewal period.
Benefits of renewing your mortgage early
Renewing your mortgage early can offer a range of valuable benefits, allowing you to lock in competitive rates, reduce long-term interest costs, and avoid penalties while tailoring terms to your goals.
- Secure better rates: If interest rates are expected to rise, starting the mortgage renewal process early allows you to lock in a fixed-rate mortgage, protecting you from higher interest rates and ensuring your mortgage payments remain stable and predictable.
- Save on interest: Locking in a lower mortgage rate means you’ll pay less interest over the life of your mortgage, helping you save money and pay off your mortgage faster. This is especially important if your financial goals include becoming mortgage-free sooner or minimizing the total interest paid.
- Compare options: The early renewal process gives you the flexibility to review your mortgage options and compare offers from your existing lender and other financial institutions. If your current lender isn’t offering the best mortgage rate or terms, you have time to shop around, ask a few questions, and even consider switching to a new lender that better suits your unique situation.
Ultimately, renewing your mortgage early puts you in the driver’s seat. Whether you want to pay less interest, avoid higher interest rates, or simply explore your mortgage renewal options, acting early gives you the time and flexibility to make the best decision for your financial situation.
What to consider when renewing your mortgage
Here are a few important points to keep in mind when renewing your mortgage:
· Review your personal goals
Align your mortgage renewal with your long-term financial goals, such as paying off your mortgage faster, reducing interest costs, or accessing home equity. Consider whether a fixed-rate mortgage (predictable monthly payments) or a variable-rate mortgage (potential for lower interest rates) suits your goals.
· Review your timeline
Shorter amortization periods mean higher monthly payments but less interest paid over time. If you’re halfway through your mortgage term, evaluate whether accelerating payments or making lump-sum payments could help you become mortgage-free faster.
· Review the cost of renewing your mortgage
Compare your current lender’s renewal offer with rates from different lenders to ensure you’re getting the best deal. Shopping around can help you secure a personalized rate suited to your financial situation.
Example:
Let’s say you have a $500,000 remaining mortgage (25-year amortization) renewing for another 5-year term. Your current lender offers a 4.5% fixed rate. Accepting this would cost $105,023 in total interest over 5 years, with monthly payments of $2,767.
By shopping around, you secure a 4% fixed rate from another lender. At this rate, you’d pay $93,075 in total interest—saving $11,948 over 5 years. Monthly payments also drop to $2,630 ($137 less per month).
When switching lenders, be aware of setup fees and other administrative costs, and ask your new mortgage lender if they can cover some or all your switching expenses.
How to renew your mortgage
Renewing your mortgage in Canada is a fairly simple process, especially if you’re staying with your existing lender. First, your current lender will send a renewal notice a few months before the end of your term. Then, you’ll review your existing terms, compare rates, and decide on any changes. If you switch lenders, you may need to provide additional financial documents to be approved for the new loan.
In both cases, negotiating terms like interest rate and payment frequency is common, and you may adjust the amortization period as needed.
Do I need to requalify at renewal?
Staying with your current lender? You probably won’t need to requalify. However, switching to a new lender may require you to submit updated proof of income, undergo credit checks, and have your debt-to-income ratio reassessed.
Remember, the new lender might use different criteria than your original lender to determine if you qualify for a mortgage.
What do I need to renew my mortgage?
Depending on the lender, some documents needed to renew your mortgage include:
- Updated financial documents (pay stubs, tax returns)
- Property tax statements
- Government-issued ID
- Details about your current mortgage (outstanding balance, renewal date)
Should I stick with the same lender?
While convenient, loyalty isn’t always rewarding. Use your renewal period to negotiate a better interest rate or improved terms. Some lenders may match competitors’ offers to retain their clients.
Early renewal hurdles? Access your home equity with Alpine Credits
If penalties for renewing early are prohibitive or your mortgage renewal is denied, consider a home equity loan to quickly access cash. Alpine Credits specializes in home equity solutions for unique financial situations, offering flexibility and accessibility when you need it most.
Apply for a home equity loan in three simple steps:
- Apply online—The application with Alpine Credits is simple and can be completed in minutes.
- Get approved— if you own at least 25% of your home, you are eligible for a home equity loan from Alpine Credits. Get approved as quickly as 24 hours.
- Receive funding—Alpine Credits will deposit the money directly into your bank account within a few days of your approval.
If you have more questions, contact a Financial Solutions Specialist at Alpine Credits for a free, no-obligation quote today.
Frequently asked questions
How far in advance can I renew my mortgage in Canada?
Most lenders allow renewal discussions 120–180 days before your maturity date. Be sure to check with your lender to confirm the renewal period so you can start shopping for your options early.
What is the cost of early mortgage renewal in Canada?
Penalties apply only if you break your mortgage term early (e.g., switching lenders mid-term). Renewing during the designated period with your existing lender is typically penalty-free.
What happens if I don’t renew my mortgage?
Your lender will automatically renew your mortgage at a higher rate, often with less favourable terms. Renewing early gives you more time to compare competitive rates and terms, allowing you to secure the best deals for your specific situation.