When it’s time to renew your mortgage, it’s easy to rush the process or simply sign the renewal offer without a second thought. But in today’s market, that can mean leaving thousands of dollars on the table or locking into terms that don’t fit your current goals or long-term mortgage strategy.

Mortgage renewals provide an opportunity to reassess your mortgage, aligning it with your financial strategy, negotiating more favourable rates or terms, and re-adjusting your payment schedule.

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Key Takeaways

• Start early and allow sufficient time to compare options and negotiate rates.
• Terms, penalties, and flexibility matter just as much as the rate.
• Ensure your renewed mortgage aligns with your current and future needs.

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Why Mortgage Renewal Deserves More Attention

A mortgage renewal isn’t just a formality or a quick signature. It’s one of the few times during your mortgage when you can renegotiate your interest rate, switch lenders, or change important features affecting your prepayment penalties.

This flexibility means you can adjust your mortgage to reflect changes in your income, family situation, or the market itself. Your renewal presents an opportunity to consider whether a shorter term, a longer term, fixed or variable rate might be more suitable, given current market conditions. 

Homeowners should start comparing rates and terms at least 90 to 120 days ahead to avoid last-minute pressure. Being proactive gives you more leverage and time to secure the best possible deal.

Top Mistakes to Avoid at Renewal Time

Renewing your mortgage can feel straightforward, but it’s surprisingly easy to make decisions that cost you over time. When your renewal letter arrives in the mail or your inbox, it’s tempting to sign on the dotted line without much thought. But making a quick decision or assuming your lender is offering you their best deal can cost you more than you expect over the long run. 

Many borrowers don’t realize that renewing is one of the few opportunities they have to reassess every part of their mortgage, from the interest rate to the payment schedule and even the lender itself. Taking the time to understand what your lender is offering and what else is out there means you’re far more likely to end up with a rate and terms that genuinely fit your situation, rather than settling for convenience.

Automatically Accepting Your Lender’s Renewal Offer

When your mortgage term is almost up, your lender will typically mail you a renewal offer with a list of pre-selected rates and terms. This offer may appear to be a reasonable rate and a convenient process, but it’s usually not their most competitive deal.

Many lenders rely on the assumption that borrowers are busy or believe loyalty translates to not needing to negotiate for better pricing. In reality, staying silent often means accepting higher rates. Even a difference of 0.25% on your interest rate could help you save thousands over your next term.

Pros of Negotiating Your Renewal

• Potential to secure a lower interest rate, which reduces your total interest costs over time.
• Opportunity to customize your mortgage term to better suit your current financial goals.
• Flexibility to adjust your payment frequency or secure better prepayment privileges that help you pay off your mortgage faster.
• A chance to switch lenders that may offer better rates or features your current lender doesn’t have.

Cons of Automatically Signing

• Higher interest payments over the life of your mortgage which could impact your monthly budget or ability to save for other goals.
• Less control over important details like prepayment penalties, prepayment privileges, portability, assumability or renewal timelines.
• Potentially missing out on incentives, like cash-back offers, that competing lenders might provide to win your business.
• Risk of locking into a product that no longer matches your needs if your financial situation or goals have changed since your last renewal.

Ignoring Changes to Your Financial Situation

Life rarely stays the same between mortgage terms. Maybe you’ve paid off a line of credit, started a new job, or started a family. All these changes can affect what kind of mortgage makes sense for you today compared to when you first started the term.

If you don’t revisit your goals and obligations, you could lock into a mortgage that doesn’t reflect your priorities. If you’ve recently increased your income, it might be a good time to consider an accelerated payment schedule or a mortgage with favourable prepayment privileges. These can reduce interest costs significantly over time and help you pay off your mortgage faster. 

On the other hand, if you anticipate a job change, reduced income, or higher expenses, you may need to explore options that help you free up cash flow. This could involve switching from accelerated to monthly payments, or extending the amortization period back to your contractual amortization to help reduce payments. While this means you’ll pay more interest over the life of the mortgage, it can provide breathing room in your budget when things may be tight. 

Focusing Only on Rate, Not Terms and Conditions

Interest rates are important, but they aren’t the only factor that should matter when it comes to your mortgage. Every mortgage comes with a set of terms and conditions that can significantly impact your ability to adapt later. 

For instance, the lowest advertised rate may come with strict prepayment limitations. If you want to make extra payments or pay off the mortgage early, you could face stiff penalties that negate any savings you would realize. 

Some lenders register your mortgage as a collateral charge, which can complicate the process of switching to another lender later on. Take the time to review these details that can help you avoid unpleasant surprises down the road.

• Prepayment privileges: How much extra can you pay each year without a prepayment penalty?
• Portability: Can you transfer the mortgage if you move?
• Assumability: Can you transfer the mortgage to the buyer of your home if you sell before your term ends?
• Penalties: What will it cost to break the mortgage early?

Missing the Renewal Deadline

One of the simplest and most costly mistakes is missing the deadline to renew your mortgage. If you don’t sign your renewal agreement by the time your mortgage matures, your lender may automatically renew your mortgage for you into a new term. This could be a short-term closed or open mortgage at a significantly higher interest rate. 

Setting reminders in your calendar and starting early, ideally 90–120 days before maturity, gives you ample time to negotiate, review options, and secure a new term without stress before your current mortgage term ends.

Forgetting to Stress-Test Your Payment

Many homeowners simply carry over the same payment structure into their new mortgage term without asking whether it still works for their budget. But if rates have increased, your monthly payments could rise sharply. If rates have decreased, you could see lower payments, giving you room to explore ways to pay down your mortgage faster or set aside money for other goals. 

Before you sign a renewal, it’s smart to test what your payments would look like if rates climb further or if your income changes. This helps you avoid payment shock and gives you confidence in your mortgage affordability. 

For example, if your payment will increase by $300 per month, it’s worth calculating how that will impact your budget and savings goals over the next term. However, if your payment will decrease by $300, it’s worth exploring whether maintaining the same mortgage payment you currently make, which could help you pay off your mortgage faster, makes sense. 

How to Prepare for a Smooth Renewal

Starting early and staying organized can turn your renewal into a positive opportunity rather than a rushed decision. Gather any documents you’ll require early in the process. This typically includes your current mortgage statement and proof of income (such as recent pay stubs or T4s) if you plan to switch lenders. Having everything ready ahead of time makes it easier to shop around with different lenders to explore your options.

Compare rates and options from multiple lenders to find the best deal. Don’t assume your current lender’s offer is the best you can do. Even if you prefer to stay with your current lender, showing them that you’ve shopped around gives you more leverage to negotiate a better rate or more favourable terms.

Finally, consider your current goals and any life changes that may impact your ideal mortgage. Whether you plan to move, renovate, relocate for work, or retire before the end of your next term. Aligning your renewal decisions with your future plans helps you avoid any regrets or costly prepayment penalties if you need to break the mortgage.

Frequently Asked Questions (FAQ) About Common Mortgage Renewal Mistakes

Final Thoughts

Renewing your mortgage is a valuable opportunity to reassess your needs and ensure that your mortgage still aligns with your lifestyle today. Whether you’re looking to lock in a better rate, adjust payments, or explore new lenders, taking the time to understand the options available can help save you money. By avoiding common mistakes, such as allowing your mortgage to auto-renew or ignoring your changing needs, you can select the rate and term that best meet your financial goals and future housing needs.

If you’re ready to compare options or want expert guidance, connect with a nesto mortgage expert. They’ll help you navigate the renewal process, explain your options in clear language, and readjust your mortgage strategy to fit your goals today and in the future.

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