Whether you just got the keys to your dream home or are nearing the end of your mortgage term, knowing how to prepare for your mortgage renewal is an essential part of your financial future. It is estimated that approximately 2.2 million Canadian households will come up for mortgage renewal in 2024.

What to Expect

When you purchased your home, you would have signed a mortgage agreement with an amortization period likely between 15 and 25 years. However, over the course of that time, the mortgage itself will be broken up into terms that last anywhere from 6 months to 10 years, with the typical between 2 to 5 years. In Canada, five-year mortgage terms are by far the most common, and generally offer the most competitive rate pricing.

Regardless of the term length, your mortgage will be up for renewal at the end of each term as specified in your mortgage agreement, unless the balance is paid in full. Aside from circumstances of sudden wealth acquisition (i.e., an inheritance or large bonus), it is likely you will require multiple terms in order to pay your mortgage in full. Regardless of your selected term, you will have some crucial decisions to make.

For some, renewal time may be a cause of stress, but knowing what to expect can help you get ahead. Under Federal regulations, the banks must provide at least 21 days notice before the end of an existing term. In any notice scenario, it is helpful to consider your costs early as it can help make the process more manageable. Some common costs associated with renewing a mortgage include:

• Registration fee;

• Discharging the original mortgage;

• Home appraisal;

• Transfer fee; and,

• Legal or notary fees.

Getting the Best Rate

The biggest factor that can affect the rate you’re offered at renewal time is whether your financial standing has changed since you originally took out your mortgage. For example, if you’ve reduced your total debt or improved your credit score, you may receive a more favourable rate from lenders. In contrast, frequently missing credit payments, a decline in income or job loss, or a lowered credit score could negatively impact your renewal rate. It’s important to stay in financial good standing in order to keep your payments affordable or you may need to refinance at a significant rate increase.

Given today’s rising interest rates, taking a proactive approach to your mortgage renewal can help you minimize the shock to your wallet and adjust your budget accordingly. It is a best practice to start shopping around for a new mortgage rate and product early. If you’re staying with your current lender, most will let you renew early – within the final 120 days of your mortgage term – without penalty.

If your financial standing has remained the same or improved, your lender may offer to renew your mortgage at a lower rate. While this may seem like a quick and easy option, it may be in your financial best interest to shop around first as you may qualify for a rate elsewhere that is lower than the one quoted in your renewal letter. Always feel empowered to negotiate with your lender to achieve a rate you’re happy with—do your research so you are familiar with the current market. Ensure you keep proof of any competing quotes from other mortgage providers, as these may be required to secure the best rate. 

Helpful Hint: While shopping around, don’t hesitate to ask for a rate hold. Most lenders will let you hold a rate for 90-120 days. If during the time of your rate hold the mortgage rates go down, you can still negotiate to get the lowest rate. A rate hold simply gives you some security if you’re worried that rates will go up before you’re ready to renew.

While there are some ways to achieve a lower rate, unfortunately, chances are that if your last term began in the first few months of 2022 or earlier, you won’t find a similar rate in today’s market. While you can expect your monthly payments to increase, you can still shop around for the best option. If you find a lower rate elsewhere that your current lender isn’t willing to match, it may be time to move on in order to best protect your financial health.

Tools like the Comparison option within our Mortgage Calculator can help make this process easier. Need more advice? One of our financial advisors would be happy to help. Send us a message and a member of our team will get back to you within two business days.

Beyond Rates

While achieving the lowest rate is top of mind during the renewal process, it’s also important to ensure your current lender is allowing you to prioritize your saving goals and offering the supplemental benefits that fit your needs. As outlined below, you may benefit from making changes to your amortization period or changing your mortgage type.

If your current mortgage payments are more than you can comfortably afford or the interest rates you qualify for will cause your payments to surpass your budget, you may want to consider whether lengthening your amortization period makes sense if it is something your mortgage holder permits. Extending this period would allow you to reduce your monthly mortgage payments, but it comes with higher interest costs over the long term. On the other hand, if you’ve gained more flexibility in your budget you could opt to shorten your amortization period, therefore creating higher monthly payments but with less interest paid overall. Ensure any changes you want to make to your financing take place during your mortgage renewal or your contract will be considered broken, and you may be subject to penalties.

You also have the option to change your mortgage type at the time of renewal. This may be a good option if you happen to come into a large sum of money or your long-term plans change. In this case, rather than renewing for another 5-year term, perhaps CUA’s Open Term Mortgage better suits your needs. With this type of mortgage, you can make payments ahead of schedule without penalty, perfect for those looking to sell or in a position to pay off the entirety of their mortgage much sooner than anticipated. While this again would be considered acquiring a new mortgage, you wouldn’t be subject to the penalties of breaking contract as mentioned above. And once covered under CUA’s Open Term Mortgage, there are no penalties for converting to another mortgage type prior to renewal!

In addition to the Open Term Mortgage, CUA also offers a series of unique home financing products that are worth considering at any time to help you reach your homeownership goals, and beyond. Learn more online or contact a member of our team at 902.492.6500 or info@cua.com for a professional recommendation based on your unique needs.

Switching Lenders

If you decide to change your lender, you’ll need to submit a mortgage application as though you are applying for a new mortgage which, at a minimum, means you’ll need to provide documentation including:

• Copy of your mortgage renewal letter;

• Proof of income;

• Proof you own your home; and,

• Proof of property insurance.

The new lender may use different criteria than your original lender to decide if you qualify for a mortgage. This switch may also involve some additional costs, such as:

• Setup fees with the new lender;

• Property appraisal; and,

• Administration fees.

Additionally, you may have to pay a new mortgage insurance premium when you switch lenders if the amount of your loan increases or you extend the amortization period. While these fees are an additional cost, having a lower interest rate on your mortgage may save you thousands in the long term.

Still not sure what is the right option for you? Contact us today! Your goals are our goals—whatever your next move may be, we are here to help.