Mortgage Renewal in Canada: A Complete Guide to the Process

Mortgage contracts are in effect for a specific period, AKA mortgage term. Mortgage renewal occurs at the end of each term, where you need to pay the full balance or renew mortgage for another term.

In this guide, we’ll see how does a mortgage renewal work, what are its key steps, and how to find and secure the best offer. Let’s get started.

How Does Mortgage Renewal Work?

The mortgage renewal process begins with receiving a renewal statement from the lender, at least 21 days before the current term ends.

You can then negotiate for better interest rates or consider offers from other lenders. After agreeing to the terms, you can sign the new contract and continue the mortgage under the latest conditions.

Mortgage Renewal Process in Canada

Canada mortgage renewal has a similar process. Nevertheless, it is crucial to prepare in advance. This way, you will have enough time for comparison shopping and negotiation.

Here are the key steps to renew a mortgage in Canada:

1. Preparation

It is recommended to start preparing around four months before the renewal date. Leave one month of the timeline for researching and comparing mortgage rates from different lenders/brokers.

Three months before renewal, contact promising lenders and explore your options. Within 30 days of renewal, you will receive the lender’s offer.

2. Notification

Your current lender will send you the renewal statement, which should outline the mortgage balance, interest rate, payment frequency, term, and any applicable charges; basically, all the details that help you to evaluate and decide.

3. Review and Assessment

Before renewing a mortgage, evaluate your situation, mortgage needs, and financial plans to determine if the current mortgage still aligns with your goals. Think about whether you would like to change payment frequency, reduce interest rates, etc.

4. Comparison Shopping

Seek mortgage options from other lenders and mortgage brokers to compare interest rates and terms. You could choose a new lender, or leverage offers from other institutions when negotiating with your current lender.

5. Decision and Signing

Once you find a suitable offer, finalize the agreement and sign the new contract. If you switch lenders, you should submit a mortgage application too, and pay potential fees like appraisal, discharge, or legal fees.

You might also want to know what happens if your mortgage renewal is denied?

Renewing with the Same Lender vs. Switching Lenders

Renewing mortgage with the same lender is typically simpler and faster, as you already have an established relationship. Additionally:

• Lenders are often reluctant to provide competitive rates, as they already have your mortgage business. But some of them may offer a slight discount or preferential terms to retain your business. They might also consider loyalty programs for other financial products or services.
• Since the lender already has your financial information, the mortgage renewal process will be significantly streamlined. This can save you a lot of time and effort.
• You probably don’t have to pay any fees for renewing the contract with your current lender.
• You can negotiate for a better rate, especially if your credit score has improved or you have found better offers.

However, there are drawbacks to consider. For instance:

• If you take no action, the mortgages may automatically renew at a less favorable rate.
• Some lenders offer higher rates than those you get as a new client because they rely on customer inertia. This is why you always need to shop around for new offers and lenders before Canada mortgage renewal.
• New lenders are far more likely to provide better conditions (including lower interest rates), helping you save more money over the term.

Tips for Successful Mortgage Renewal

All you really need is to start early and shop early. First, evaluate your financial situation and goals. Consider any changes in your credit score, income, and debt, so the renewal doesn’t become a financial strain.

Before receiving the mortgage statement, look up the latest rates, mortgage types, as well as available amortizations, and get quotes from potential lenders. Leverage the info and offers and ask your current lender for a better rate.

If you were unable to reach an agreement, make sure you are ready (mostly timewise) to switch lenders. And if you want to make the whole process a breeze, hire a mortgage broker with established experience for mortgage renewals in Canada.

Frequently Asked Questions

What happens on a mortgage renewal?

You extend your mortgage contract for another with your current lender, or switch lenders if better deals are available; it is up to you.

Why do banks want you to renew your mortgage early?

Banks offer early renewal of mortgages, potentially with incentives like lower interest rates, to secure customer business for another term.

Can you be denied a mortgage renewal?

In case of missed payments, poor credit scores, or financial/market fluctuation, lenders could deny the renewal.

What is the penalty for renewing a mortgage?

Renewing the mortgage comes with a penalty, which is either three months' interest in your current rate or the difference between current and new interest rates (IRD). It is calculated over the remaining mortgage term.

Is there a stress test for mortgage renewal?

From November 21st, 2024, the Office of the Superintendent of Financial Institutions (OSFI) has eliminated the stress test requirement to switch uninsured mortgages to another lender at renewal.

Conclusion

While millions of Canadians renew their mortgages each year, many of them miss the opportunity to save thousands of dollars. Hopefully, this guide helped you have a clear vision of the process and secure a mortgage that suits you best.