9 Tips for a Successful Mortgage Renewal in Canada
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Renewing your mortgage can significantly impact your financial situation. Whether you’re a first-time buyer or a seasoned homeowner, assessing your options when your mortgage is up for renewal and shopping for the best rates is critical to saving money over the life of your mortgage. Read on for valuable tips and advice for your next mortgage renewal.
Key Takeaways
- Mortgagers with federally regulated lenders no longer need to be stress-tested when switching at renewal.
- Higher interest rates mean borrowers should anticipate higher mortgage payments at renewal.
- Shopping around for the best rates and terms can help you save significantly over the life of your mortgage.
Mortgage up for Renewal in 2025? Mortgage Stress Test Changes
The stress test ensures borrowers can manage their mortgage payments financially should rates rise by qualifying them at a minimum qualifying rate (MQR). The MQR is your mortgage contract rate plus 2% or 5.25%, whichever is higher. This means that if you are offered a mortgage rate of 4.19%, you must be able to qualify at 6.19%.
The stress test was reapplied at renewal if borrowers switched lenders, making them re-qualify for the mortgage at a higher rate with the new lender. However, in late 2024, the Office of the Superintendent of Financial Institutions (OSFI) removed the MQR requirement for uninsured borrowers who switch from a federally regulated lender at renewal. The stress test for insured mortgages had been exempt for several years before that policy was clarified, and more recently, the changes were updated to include uninsured mortgages.
Borrowers with a federally regulated lender who complete a straight switch are exempt from requalifying at the MQR when renewing with another lender. A straight switch involves renewing a mortgage without increasing the loan amount or remaining amortization. This change will allow more homeowners up for renewal to shop for better rates and switch lenders.
Prepare for Higher Rates
Chances are, if you are up for renewal in 2025, you secured a historically low rate in 2020. For example, if you started a 5-year term in April 2020 with a 5-year fixed rate of 2.39%, you could be looking at an early renewal rate of 4.14% for a 5-year fixed term today. Depending on when you are up for renewal in 2025 and the direction of interest rates, you could be paying a significantly higher mortgage payment than the last 5 years.
Using the example 2.39% rate from 2020, if you started with a $500,000 mortgage with a 25-year amortization, you would have spent the last 5 years paying a monthly mortgage of $2,212.53. At renewal, assuming you made no prepayments to the mortgage and using today’s 5-year fixed rate, your payments will increase to $2,582.11. That’s an increase of $369.58 each month. , you can potentially save thousands of dollars over the life of your mortgage.
Tips for a Successful Mortgage Renewal in 2025
If you’re up for renewal this year, here are some tips to remember when shopping for a new rate.
1. Shop Early
Most lenders will offer you the option to renew your mortgage early. Depending on the lender, this process begins 120 days before renewal, allowing you to renew with your current lender early without prepayment penalties. Whatever your lender’s early renewal allotment, it gives you more time to evaluate the state of the mortgage market and where rates may be heading.
You can use your lender’s rates and compare them with what other lenders offer. If you find a lower rate, you can negotiate with your current lender or lock in the rate with the new lender for your renewal date.
2. Never Accept Your Bank’s First Offer
Rarely will you be offered the best rate with your lender’s first offer. Lenders typically assume that the convenience of signing a borrower’s first offer will outweigh the inconvenience of shopping around or negotiating for a better rate. That’s why it’s essential to take the time to contact your lender to negotiate for a better rate and explore your options with other lenders to see if you can secure a lower rate or more favourable terms elsewhere.
3. Reassess Your Needs
Before you renew, look at your current situation to see if there have been any significant changes since your last renewal or when you first got the mortgage. If significant life events could impact your financial or current living situation, this is the time to reassess your mortgage needs.
You may need to consider a shorter fixed term or a variable rate because you plan to relocate for work or upgrade to a larger home to accommodate an expanding family in the next few years. Or you may be planning to downsize or renovate your home for a secondary suite. Understanding your current and immediate future needs can help you choose a mortgage solution that aligns with these goals.
4. Compare Rates and Offers
Today, comparing mortgage rates and offers across lenders is much easier. Take advantage of online resources that can simplify the process and help you compare options.
For example, you can create a spreadsheet to compare the options from different lenders, including rates, terms, and fees. This will allow you to closely compare the options available to choose the one that best aligns with your needs. You can also enlist a mortgage broker to help with your search. They have access to various offers from different lenders and can help you compare and find the best rates and terms.
5. Consider Your Long-Term Financial Goals
Renewal is the best time to assess your financial goals. Do you plan to pay off your mortgage early? How important is flexibility in making additional payments or increasing your mortgage payments should your financial situation change? Not all mortgages are created equal, and neither are the financial circumstances of two different mortgage holders. Understanding your long and short-term financial goals can help you choose a mortgage with features that better suit your needs.
6. Seek Professional Advice
Seeking professional advice and guidance can help you find the best mortgage product for your needs. A mortgage expert can help you choose a mortgage that has not only the best rate but also the features that you need. A mortgage expert can assess your current financial situation, short and long-term goals and provide personalized advice to help you choose the best mortgage solution.
7. Understand the Terms and Conditions
Before you sign, it’s essential to understand the terms and conditions of the loan thoroughly to avoid any surprises. Review the fine print and ask questions if you have concerns or don’t fully understand something. Borrowers typically pay attention to their cost of borrowing (COB), which comprises the interest rate, payment frequency, amortization, and fees associated with any legal costs, appraisal, or mortgage transfer. However, your prepayment privileges and the penalties or fees associated with breaking the mortgage before the end of the term are just as crucial.
8. Stay Informed and Be Proactive
The mortgage market and rates are constantly changing. Keeping on top of interest rates, inflation, and employment data can help you determine how rates may be impacted. By proactively monitoring mortgage rate forecasts and trends in the market, you can determine where rates may head in the future.
If rates are anticipated to increase or the economy is experiencing volatility, lock in a rate as soon as possible to avoid higher rates. If rates are anticipated to decrease, it may be wise to wait until closer to your renewal date before securing a rate. However, if you are switching lenders, give yourself at least 60 days to start the transfer process, as your current lender may need up to 30 days to process your mortgage payout instructions.
9. Keep Your Credit Score Healthy
Maintaining a good credit score demonstrates your creditworthiness and can help you secure better rates and terms. If you switch lenders, you must go through the application process again, and they may check your credit as part of the application process. Paying all bills on time or well before their due dates, keeping your credit utilization low, and avoiding unnecessary debt (car, auto, student or consumer loans) can keep your credit score healthy for your renewal.
Frequently Asked Questions (FAQ) on Mortgage Renewals in Canada
What factors are considered when renewing a mortgage?
If you are switching to a new lender, you must go through the application process and have the lender assess your financial situation. This can include reviewing your credit score and meeting the new lender’s qualifying criteria. You’ll also be required to provide documents to verify income, which may consist of pay stubs, T4s, letter of employment (LoE), and possibly your notice of assessment (NOA) if you’re self-employed, contract, or receive commissions.
Can I negotiate my mortgage renewal?
You can and should negotiate your mortgage renewal. Rarely will you be offered the best rate from your lender at the beginning when you receive the renewal letter. Take the time to negotiate with your current lender and leverage rates offered by other lenders in your negotiations. If your lender can’t be competitive, it’s worth exploring switching at renewal since you could save thousands over your next mortgage term.
Can I be denied my mortgage renewal?
While rare, lenders could refuse to renew your mortgage if you have missed payments, a drop in your credit score, or have high debt levels. If you make mortgage payments on time, have a good credit score, and have manageable debt, your renewal should proceed smoothly. However, switching lenders requires a reassessment of your finances, so you must meet the new lenders’ borrowing criteria. Otherwise, your new lender could decline to renew your mortgage with them.
Final Thoughts
With 5-year or shorter mortgage terms the most popular options, renewing your mortgage is an unavoidable part of the mortgage process in Canada. Unless you have the cash to pay off your mortgage after the term, you will be required to renew it multiple times over the life of the mortgage. While shopping around at every renewal to secure the best rate and terms can help you save significantly over the life of your mortgage, finding a transparent lender who doesn’t haggle to offer you their best mortgage rate may save you time next time around.
Are you coming up for renewal in 2025? If you’re done haggling and want to find the best mortgage rate with transparent terms and conditions, contact a nesto mortgage expert today and see how much you can save by switching to nesto.
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