As a mortgage borrower in Canada, you’ll inevitably be faced with the decision to either renew or refinance when your mortgage term expires. For this reason, it’s important to understand the difference between the two so you can choose which will best suit your needs and goals.

Here’s what you need to know:

Mortgage Renewal

mortgage renewal occurs when your current term expires, yet you still have money owing on your loan. In this scenario, you’ll opt to stay with your existing lender for another term (typically under the same conditions as the one previous), at an interest rate reflective of the current market.

Keep in mind, when your mortgage is up for renewal, you don’t have to stick with your current lender. You may opt to shop around to see if you can secure better interest rates and terms elsewhere. That being said, if you don’t take action, your mortgage may auto-renew, meaning you could be missing out on better conditions. Be sure to check your renewal statement for more information.

Renewal Pros and Cons 

Pro: Lock in a lower interest rate

Con: Switching lenders may result in additional set up fees

Pro: The potential for better terms and conditions

Con: Prepayment penalties (if breaking your contract early)

Pro: Save thousands over the lifetime of your loan

Tips for Renewing Your Mortgage 

  • Don’t sign your renewal letter until you’ve either negotiated with your current lender or shopped around.
  • Do not apply for new credit until after your mortgage has renewed, as this could affect your ability to get a better rate. Be sure to pay off outstanding debts beforehand, as well.
  • When shopping around, look for lenders that will hold their offered rate for 90 to 120 days. This will give you more time to consider your options.

Mortgage Refinancing 

Mortgage refinancing, on the other hand, can occur at any time throughout your mortgage term. You may opt to refinance if your current terms and conditions are no longer meeting your needs – in which case you will need to break your old contract and renegotiate a new one.

Homeowners may choose to refinance to either a) secure a better interest rate or b) access the equity in their home (for renovations, debt consolidation, college tuition, a new business venture, etc.).

Refinancing Pros and Cons 

Pro: Lower your monthly payments (or increase your ability to pay your mortgage off faster with higher payments)

Con: Prepayment penalties (may be higher than the potential for savings)

Pro: Potential to save on interest

Con: Payments for the first year are likely to cover interest only

Pro: Put your home equity to work

Tips for Refinancing Your Mortgage 

  • Calculate how much you may need to pay in penalties using a prepayment penalty calculator. This may help you decide if refinancing is the right decision for you.
  • Ask for a mortgage rate lock.
  • Determine how much equity you have in your property ahead of time. While lender requirements vary, experts recommend having at least 20% (especially if you have a lower credit score).
  • If you’re unsure where to start (whether refinancing OR renewing), talk to a mortgage broker. They will be able to make suggestions as to which option may best suit your current situation and, when it comes to shopping around, they will do the legwork for you.

Are you in the market for a mortgage? Download your free copy of our guide, The Top 20 Mistakes Home Buyers Make (and how to avoid them). Or, for further Edmonton real-estate related tips and advice, subscribe to our newsletter! 

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Posted by Terry Paranych on


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