How to Renew Your Mortgage
Table of contents
Every homeowner in Canada will eventually need to go through the mortgage renewal process. Whether you’re happy with your current lender and want to learn more or explore other lenders, understanding the renewal process will help you remain one step ahead and be prepared for your upcoming mortgage renewal. This post will guide you through everything you need to know about preparing for and completing your mortgage renewal when the time comes.
Key Takeaways
- Renewal is the perfect opportunity to renegotiate for more favourable terms and rates.
- You should start thinking about your renewal at least 120 days before your current term ends.
- Exploring other lenders’ offerings ensures you secure the best possible deal for your mortgage.
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What is a Mortgage Renewal?
A mortgage renewal is the process of re-negotiating your interest rate and terms with either your current lender or you may choose to switch to a different lender. This process occurs at the end of every mortgage term, with 5-year terms being the most common. At this point, the remaining balance of your mortgage needs to be renegotiated into a new term, more commonly known as mortgage renewal.
With a renewal, you have the opportunity to reassess your mortgage needs, including the lender, interest rates offered, payment frequencies, and the length of your new term, which typically spans from 6 months to 10 years. Most mortgages in Canada are set up with an amortization of either 25 or 30 years, so you will have multiple terms throughout the life of the mortgage, which you will be required to renew before it’s paid off in full.
The Difference Between Renewing and Refinancing
Renewing and refinancing involves making changes to your mortgage; however, that is where the similarities end. Renewals are an extension of your existing mortgage contract where you will continue with your current amortization schedule, choosing a new interest rate and term.
A refinance is where you break your current mortgage contract to make substantial changes, including increasing the mortgage amount, extending the amortization, or adding/removing a title holder from the home (covenant change). Refinancing allows you to leverage home equity, consolidate debt, or secure a lower interest rate (before your term ends).
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How a Mortgage Renewal Works in Canada
A mortgage renewal typically begins with your lender sending you a renewal statement. Lenders are required to send out the renewal statement at least 21 business days before your current mortgage term ends. The statement will outline the details of your mortgage, like the remaining balance at renewal, payment frequency, term length, interest rate and any other applicable fees and charges.
You will also receive a renewal offer with the renewal statement that outlines what your lender is offering you as a new interest rate and terms. When you receive this offer, you can either accept and sign it, try to negotiate a better rate or explore renewing your mortgage with a different lender that is more competitive.
Most lenders offer the option to renew early, between 90 and 180 days before your current term ends, without penalty. It’s always better to plan ahead and explore your renewal options before receiving the renewal information since it could take more than 21 days to compare lenders and negotiate or renegotiate. Switching lenders can take up to 30 days or more, making it prudent to leave enough time for you to understand the renewal rates available for your mortgage situation.
How to Renew Your Mortgage
Renewing your mortgage involves several steps, each playing a role in helping you secure the best rate and favourable terms.
Renew With Your Lender
Renewing with your current lender can be a simple process, as you won’t need to re-qualify for the mortgage. You’ll only need to review the renewal offer, negotiate if necessary, and then sign and return the renewal offer.
- Understand your current mortgage terms: Familiarize yourself with your current mortgage terms. This includes your interest rate, payment frequency, and the remaining balance.
- Shop around for a new mortgage rate and term: Rarely will your lender’s first offer be their best. Don’t simply accept the first offer you receive. Research and compare different lenders to find a deal that best suits your needs. The mortgage market changes rapidly in Canada, so it’s best to understand what rates are available for your situation when your mortgage matures.
- Negotiate new mortgage terms: Use your research to negotiate better terms with your lender.
- Finalize your mortgage renewal: Once satisfied with the rate offered and terms, sign the renewal agreement. Be sure to record your renewal instructions by requesting an email or the details over the phone when you finalize your renewal. Upon renewal, you should receive a renewal notice from your lender.
Renew With a New Lender
If you decide to renew with a new lender, you must go through the application process again, similar to when you applied for your initial mortgage. This involves gathering and providing all the documentation required to qualify you for the mortgage. These documents can include pay stubs, T4s, and notice of assessment (NOA). You’ll also be required to meet all of the new lender’s qualifying criteria and possibly undergo a credit check, and this process may involve additional costs like home appraisal fees.
What Happens When a Lender Won’t Renew My Mortgage?
While rare, a lender can refuse to renew your mortgage. This could be due to missed payments, a poor credit score, and high debt levels. If you find yourself in this situation, there are several possible solutions to explore, including finding a co-signer or guarantor, improving your credit score, increasing your income, consolidating debts, refinancing, moving to subprime lending or as a last resort, selling or downsizing.
Frequently Asked Questions
When should you start the mortgage renewal process?
You should start to think about the mortgage renewal process at least 120 days before your current term ends. This gives you enough time to assess your financial situation, compare offers from different lenders, and negotiate the best rate and terms for your next term.
What is a mortgage renewal statement?
A mortgage renewal statement is a document your lender sends outlining the remaining balance on the mortgage, interest rate, term length, and any other additional charges or fees. This is sent along with your renewal offer at least 21 business days before the end of your current term.
Do mortgages automatically renew?
If you do not take action before the end of your term, some lenders may automatically renew your mortgage to a shorter term with standard rates, which carry higher interest rates.
Final Thoughts
Mortgage renewal provides an opportunity to reassess your financial circumstances, negotiate better terms, and ensure your mortgage continues to meet your needs. Understanding the current mortgage market will help you determine when to start thinking about your upcoming renewal and prepare you to negotiate or switch lenders if necessary.
Whether you choose to renew with your current lender or switch to a new one, it’s important that you thoroughly research your options and do your due diligence to find a mortgage solution that best meets your needs.
Contact a mortgage expert today to see if renewing or switching your mortgage to nesto is right for your mortgage strategy.
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