Renewal vs Refinance

When you secure a mortgage with a lender, the contract is for a specific period known as the mortgage term, which can range from a few months to five years or more.


What it means to renew your mortgage

When you get a mortgage with a lender, your contract is in effect for a specific period of time. This is called the mortgage term, and it can range from a few months to five years or longer.

You have to renew your mortgage at the end of each term unless you pay the balance in full. You’ll most likely require multiple terms to repay your mortgage in full.

Your renewal statements

If your mortgage contract is with a federally regulated financial institution, such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term. Your lender must also notify you 21 days before the end of your term if they won’t renew your mortgage.

The lender will provide you with paper statements or electronic statements, if you consent to this method of communication.

A renewal statement must contain the following information:

  • the balance or remaining principal at the renewal date
  • the interest rate
  • the payment frequency
  • the term
  • any charges or fees that apply

The renewal statement must also specify that the interest rate offered won’t increase until your renewal date.

You may receive a mortgage renewal contract at the same time as a renewal statement.

Review your mortgage needs

When your mortgage term comes to an end, you have to pay off your mortgage in full or renew it. This is a good time to review your mortgage needs and make sure you have the right product.

To help you find the right mortgage, consider if:

  • your budget allows you to increase your payments to pay off your mortgage sooner and save on interest
  • you want to change your payment frequency
  • you’re likely to make additional payments
  • you’re satisfied with the services offered by your current lender
  • you want to consolidate other debts that have higher interest rates and increase the amount of your mortgage
  • you still need optional life, critical illness, disability or employment insurance

If your lender is a federally regulated bank, they must offer and sell you products and services that are appropriate for you, based on your circumstances and financial needs. They also must tell you if they’ve assessed that a product or service isn’t appropriate for you. Take the time to describe your financial situation to ensure you get the right product. Don’t hesitate to ask questions and make sure you understand the mortgage you have or want.

Shop around

You don’t have to renew your mortgage with the same lender. You can move your mortgage to another lender if their conditions better suit your needs.

Start shopping around a few months before the end of your term. Contact various lenders and mortgage brokers to check if they offer mortgage options that better suit your needs. Don’t wait until you receive the renewal letter from your lender.

Negotiate for a better interest rate

Negotiate with your current lender. You may qualify for a discounted interest rate that is lower than the rate quoted in your renewal letter. Tell your lender about offers you received from other financial institutions or mortgage brokers. You may need to provide proof of the offers you receive. Make sure you have this information on hand.

If you don’t take action, the renewal of your mortgage term may be automatic. This means you may not get the best interest rate and conditions. If your lender plans on automatically renewing your mortgage, it will say so in the renewal statement.

What it means to refinance

When you refinance your mortgage, you replace your existing mortgage with a new one on different terms. To find out if you qualify, your lender calculates your loan-to-value ratio by dividing the balance owing on your mortgage and any other debts secured by your property into the current value of your property. You can take the opportunity to renovate by refinancing your mortgage to access the equity in your home either when you term is up, or before it ends.

Access Equity in Your Home

Refinancing can be a smart financial move for homeowners who want to access home equity. You can build equity in 2 ways, either as you pay down your mortgage or as your property increases in value. Refinancing increases your mortgage amount, allowing you to borrow against your home. Refinancing your mortgage allows you to borrow up to 80% of your home’s value and use those funds for anything you choose. 

Lower Your Mortgage Payment

Since refinancing allows you to negotiate a brand-new mortgage, almost all aspects of the loan can be tailored to better fit your current needs. Refinancing opens up opportunities to access a lower interest rate or extend your amortization, which will help you reduce your monthly payments.