Like most homeowners, you probably took out a mortgage to buy your home. At the end of your mortgage term, you’ll have to renew your loan unless the full balance is paid off. 

The renewal process gives you an opportunity to negotiate a better interest rate and more favourable terms. Here’s what you need to know to prepare for your mortgage renewal and avoid common mistakes that could cost you a pretty penny. 

When and why should you renew your mortgage?

When you take out a mortgage, you’ll work out a number of details with your lender, including the length of the contract, also known as the mortgage term. The most common term length is 5 years, but it can vary from 6 months to 10 years. Note that the mortgage term is not the same as the amortization period.

At the end of your mortgage term, you’ll have to renew your mortgage unless the balance has been paid off in full. For example, if you have a mortgage with a 5-year term and a 25-year amortization period, you may have to renew your mortgage four times. 

While renewing your mortgage may seem like a hassle, especially when interest rates are high, the renewal period is an excellent opportunity to negotiate better terms and tailor your contract to your current needs and goals. For example, you could switch from a variable interest rate to a fixed interest rate.

How to negotiate your mortgage renewal 

If your mortgage term is coming to an end and you haven’t finished paying off your loan, you’ll have to decide whether to renew your contract with your current lender or transfer your mortgage to another lender. Either way, you’ll have the chance to review your contract and revise the terms based on the interest rates in effect at another financial institution.

Deciding whether to change lenders

Are you satisfied with your lender’s services? Then there’s nothing to stop you from renegotiating the terms of your contract with them. To optimize your chances of getting a better rate and more favourable terms, it’s a good idea to look at what other financial institutions have to offer so you can compare them. 

There are several benefits to sticking with your current lender. For instance, it may be easier to get your renewal approved, especially if your financial situation is stable. 

Found a lender offering lower interest rates or better terms? Awesome! However, keep in mind that you may have to pay administrative or legal fees to transfer your mortgage. 

Before you take the plunge, find out what costs are involved and ask your new lender if they’re willing to waive some of them. If not, you can always try to negotiate a partial refund. 

You should also expect to go through a more rigorous approval process than if you had stayed with your current lender and to be asked to provide proof of income and other documents.  

How to find the best rate 

First, why not ask your current lender what rate they can offer you? You might also benefit from consulting a mortgage broker before making a final decision. They can scour the market to find you the lowest rates and the best terms. 

Renewing your mortgage step by step

Did you know that your lender is required to send you a renewal notice at least 21 days before your term is up? If you do nothing, your mortgage will be automatically renewed. To avoid this and make sure you’re getting the best terms possible, consider preparing for your renewal a few months in advance. A mortgage is a big commitment, so you don’t want to miss this opportunity to get advice and potentially improve your terms.

Start shopping around ahead of time 

Starting to shop around four to six months before the end of your term will give you enough time to compare the different options available on the market, which in turn will help you negotiate better terms with your current lender. Most lenders will also let you renew your mortgage up to six months early without penalty. If you make changes to your mortgage earlier than this, you could be subject to prepayment penalties, for example.

Take stock of your situation . . .

Take advantage of the renewal period to reassess your needs. Chances are your financial and personal situation have changed since you took out your mortgage! Big life events like having a baby, sending your kids off to university, getting a divorce, earning a substantial raise, or losing your job may require you to make adjustments to your mortgage contract. Remember, too, that the real estate market is always changing.

. . . and your needs 

Thinking about your needs will help you identify what changes to make to your new mortgage contract. Do you want to increase your payment amount or change your payment frequency? Are you looking for more flexible prepayment terms? Are you planning to renovate or move in the next few years? 

If so, make sure your new contract allows you to refinance your property or transfer your mortgage to your new home. You may also be able to switch to a fixed or variable rate or shorten your amortization period. 

A mortgage broker can help you find the options that best suit your needs.   

What are the costs associated with a mortgage renewal? 

If you renew your mortgage at the end of your initial term 

Thinking of transferring your mortgage to a new lender? You’ll probably have to pay a few different fees. These may include discharge and transfer fees of up to $400 each, legal fees of up to $1,500, application fees, and appraisal fees of between $150 and $500.  

If you renew your mortgage early 

There are several reasons why you might want to renew your mortgage early—for instance, a drop in interest rates, a major change in your financial or family situation, or a move. Before breaking your contract early, review the terms and conditions of your mortgage and ask your current lender about your options.    

In addition to the fees associated with transferring your mortgage to a new lender, expect to be charged penalties. Despite all of these costs, a mortgage transfer could be beneficial to you in the long run.

Don’t hesitate to contact a Multi-Prêts broker, who can guide you through the mortgage renewal process. 

Frequently asked questions about mortgage renewal: 

You’ll need to sign a contract each time you renew, whether you’re staying with your current lender or transferring your mortgage. If you do nothing at the end of the term, your mortgage will be renewed automatically, and you’ll have to wait until the next renewal window to make changes to your rate or payments. If you want to do so earlier, you may have to pay penalties.
You only need to go see a notary if you decide to change lenders.
Your current lender may refuse to renew your mortgage for different reasons, such as poor credit or a significant loss of income. Your lender is required by law to send you a renewal notice at least 21 days before your mortgage term is up, but that leaves you very little time to find a new lender if your renewal is denied. Don’t hesitate to contact your financial institution to find out what options are available to you. 

Key takeaways

  • You have to renew your mortgage at the end of each term until the balance is paid off. 
  • The renewal process gives you a great opportunity to negotiate better terms and tailor your contract to meet your current needs and goals.  
  • Shopping around early will give you enough time to compare the different options available on the market.
  • Transferring your mortgage to a new lender may entail certain costs.