How to Renew Your Mortgage
What You Should Know
- At the end of your mortgage term, you'll need to renew your mortgage
- Renewing your mortgage will give you another mortgage term with possibly a different mortgage interest rate
- Your lender can allow you to renew your mortgage early and lock-in a mortgage rate for your next term
- A renewal statement will be sent that you can accept, or you can try to negotiate with your lender
- You can renew with your current mortgage lender or switch to another lender
- At renewal, you may be able to make prepayments towards your principal with no limits or penalties
- If you want to renew your mortgage before the term is over, such as to change the interest rate, you’ll be charged mortgage penalties
- Your mortgage lender isn't obligated to renew your mortgage - they can deny your mortgage renewal if your credit score or income has significantly dropped
How Early Can You Renew Your Mortgage?
All of Canada’s major banks, including RBC, TD, Scotiabank, CIBC, and BMO, have an early mortgage renewal option that allows you to renew 120 days (four months) before your term ends without any penalties. CIBC allows you to renew 150 days early (five months), while Scotiabank lets you renew 180 days early (six months). Switching lenders before your mortgage lenders’s renewal period may cause you to have to pay mortgage prepayment penalties.
Early Mortgage Renewals at Canada’s Major Banks
| Bank | Early Renewal Period |
|---|---|
| RBC | Four Months (120 Days) |
| TD | Four Months (120 Days) |
| BMO | Four Months (120 Days) |
| CIBC | Five Months (150 Days) |
| Scotiabank | Six Months (180 Days) |
How does renewing your mortgage work?
As your mortgage term comes to an end (with the most common term being five years), you will receive a renewal statement from your mortgage lender. Your lender must send you this statement at least 21 days before your mortgage term ends.
This renewal statement will have information on your mortgage, such as your mortgage balance, term length, and interest rate. This is the interest rate that they are offering you for your next term. Depending on your lender, this offered interest rate cannot increase within 30 days of your maturity date. This means that if rates increase, the mortgage rate offered to you will still stay the same. If rates decrease, your mortgage lender may offer you a lower rate on the date of renewal.
This rate may be their lowest posted rate, which might not always be the lowest mortgage rate that they may offer. You can negotiate to get a discounted rate at your current lender to possibly get a lower mortgage renewal rate. Your renewal statement may also include other mortgage options, such as different term lengths or offers. If you choose not to negotiate and agree to the rate and term in your renewal statement, all you will need to do is sign the mortgage renewal contract. Depending on your lender, you may receive your contract in the mail to sign and return, or you may have the option to sign it online.
Will my mortgage automatically renew?
Some lenders might have automatic renewals, which means that your mortgage will automatically be renewed if you do not take any action. Your renewal statement will state if your mortgage will be automatically renewed. Automatic renewals mean that you accept the terms and rates that your lender offers, which might not always be the most favourable.
Can you be denied a mortgage renewal?
You can be denied a mortgage renewal, as mortgage renewals are not guaranteed. If your financial situation has deteriorated, such as if you have been missing mortgage payments on your previous mortgage, lost your job or now have a significantly lower credit score, your mortgage lender might choose to not renew your mortgage.
If you’ve been denied a renewal, there are a few options that you can take. You could meet with your current lender to see if accommodation could be made, try to find a cosigner, or switch to another lender. You may have to consider a B-Lender or a private mortgage lender, which often have higher rates and fees.
Read more about bad credit mortgages and alternative mortgage lenders in Canada to see what options are available to you.
Mortgage Renewal Tips
Here are a few tips on how to save money when renewing your mortgage.
- Get in touch with other lenders: Look to see what mortgage rates other lenders are offering, and use mortgage brokers to help you in your search. If you receive a lower mortgage rate from another lender, provide it to your current lender to see if they will match or beat the lower rate. If they aren’t willing to match, then don’t be afraid to switch mortgage lenders.
- Take advantage of mortgage features: Your mortgage lender might offer special features, such as allowing you to make a one-time mortgage prepayment on your renewal date without any penalties. This will save you in interest costs.
- Renew early before your term ends: Many mortgage lenders offer early mortgage renewals up to four months in advance. If you think interest rates will increase, you might want to renew early to lock in your mortgage rate before they rise.
Besides deciding between a fixed rate or a variable rate and your term length, you might also want to consider changing your mortgage amortization. If you can afford it, you can increase your regular monthly payments to pay off your mortgage faster. This will decrease your amortization. Decreasing your amortization will reduce the overall interest cost that you will pay over the life of your mortgage.
Your amortization will also decrease if your new mortgage rate is lower than your existing mortgage rate, even if you do not increase your monthly mortgage payments.
Mortgage Renewal vs Refinance
The main difference between a mortgage renewal and a refinance is that you will be borrowing more money with a refinance, and refinance rates are higher than renewal rates.
Mortgage refinancing is when you use your home equity to borrow more money on top of your existing mortgage. This then creates a new mortgage with a higher balance. On the other hand, mortgage renewals are only for the same balance amount. If you want to borrow more money when renewing your mortgage, you will need to refinance your mortgage.
Mortgage renewals can only be done when your mortgage is near the end of it’s term, with lenders allowing early renewal periods a few months before. Mortgage refinances can be done at any time, but prepayment penalties will apply if you refinance before your mortgage is up for renewal. Use a mortgage prepayment penalty calculator to see how much it will cost to refinance your mortgage before the end of it’s term.