How Mortgage Renewal Works in Canada

Assuming you still owe money on your mortgage, you’ll be facing a mortgage renewal when your current term expires.

Renewing a mortgage is about more than agreeing to a new interest rate. It’s also an opportunity to make important decisions about the next phase of your mortgage, including payment frequency and whether a new lender or mortgage product better suits your needs.

Preparing for a mortgage renewal ahead of time can take some of the stress out of these decisions.

Mortgage renewal basics

What is mortgage renewal?

Mortgage renewal is required at the end of every term. To renew your mortgage, you’ll work with a lender to structure a new mortgage agreement. This happens at the end of a mortgage term when your current contract ends.

In Canada, a mortgage’s amortization period, or the time required to repay a home loan completely, is typically made up of multiple terms. Those terms dictate how long a mortgage contract stays in place. A mortgage with a 25-year amortization, for example, might be made up of five five-year terms. You need to renew the end of each term until your mortgage is fully paid off.

If you took out a five-year fixed-rate mortgage in November 2021, for example, your term will expire in November 2026. Unless you’re able to pay off your remaining mortgage balance at that point, you’ll need to renew.

How does the mortgage renewal process work?

The mortgage renewal process isn’t overly complicated. Your current mortgage lender presents you with a new mortgage offer. You either sign it, negotiate a more suitable arrangement or choose to renew your mortgage with a different lender.

You’ll still have to make some important decisions regarding your mortgage, though, like payment frequency, amortization length and rate type. That’s where things can become a little stressful. Preparing for these decisions ahead of time can make the renewal process easier — and hopefully more financially rewarding.

When should you start the mortgage renewal process?

Generally speaking, you’ll want to start the mortgage renewal process sooner rather than later. This will give you more time to compare current mortgage rates among lenders, weigh options against your financial needs and negotiate the best mortgage contract for your next term.

Some lenders suggest beginning the renewal process up to four months before your renewal date. Some may let you renew your mortgage up to six months early without charging you a prepayment penalty.

You can always wait for your lender to send you its renewal offer. Federally-regulated financial institutions — Canada’s largest banks — are required to send you a renewal statement at least 21 days before your renewal date.

What is a mortgage renewal statement?

A renewal statement outlines the following:

If you’re satisfied with the renewal offer, you can sign it and be done with the renewal process until your next term expires.

Do mortgages automatically renew?

Some lenders will automatically renew your mortgage if you don’t respond to a renewal offer before the renewal date. The renewal statement you receive will explain this.

Automatic renewal, though effortless, could come back to haunt you. A lender’s automatic renewal process might involve signing you up for a shorter mortgage term that carries a higher interest rate. Even if it doesn’t, opting for an automatic renewal means giving up all of your negotiating power.

4 Mortgage renewal strategies that actually work

1. Start early

A thoughtful mortgage renewal involves multiple steps, which make up the rest of this list. Starting the renewal process early can ensure you have ample time to complete each step without feeling pressured.

Federally regulated banks may not send you a renewal notice until you’re only three weeks away from your renewal date. You’ll be in a better position to compare renewal rates and negotiate with your lender if you reach out to them three to four months in advance.

You may be able to start renewal talks earlier than that, but you don’t necessarily want to agree to a rate so far ahead of your renewal date, especially if mortgage rates are expected to decline.

2. Assess your finances and mortgage needs

Before you can know what you want from your next mortgage term, you need to have a clear idea of how your finances are holding up overall.

If your household income has increased, for example, you may be able to afford higher payments during the next term, which can help pay off your mortgage faster. If cash flow has become tight, you may have to consider extending your amortization period as a means of securing smaller monthly payments.

Renewal can also be an opportunity to make other adjustments to your mortgage to make it more manageable. You might, for example, decide to increase or decrease the frequency of your payments, or switch from a variable interest rate to a fixed rate. You might also need to find a lender that offers different prepayment or skip-a-payment options.

You don’t have to do these assessments yourself. Turn to your bank’s mortgage advisor or your mortgage broker for assistance. You also can do some general estimating of future mortgage costs by using a mortgage affordability calculator.

3. Use prepayments to reduce the principal before you renew

It’s always a good idea to try to reduce your principal as much as you can before renewing. It won’t necessarily affect the rate you’re offered, but there’ll be a smaller mortgage amount for the bank to charge interest on. You’ll pay off your mortgage faster, too.

Most mortgages from A-lenders allow you to make prepayments toward the principal each year. You are generally allowed to either increase your monthly payment or make lump-sum payments up to a certain limit. Just be sure to adhere to the prepayment limits outlined in your mortgage contract, or you could be charged prepayment penalties on the excess amount.

4. Negotiate and compare other rate offers

Lenders know that renewing can be an uncomfortable situation for borrowers, particularly if mortgage rates have risen, so your current lender may not feel motivated to offer you their lowest rate at first.

That’s why it’s crucial that you negotiate with your lender upon renewal.

Ask how much they can improve upon their initial offer. If they can’t get you a renewal rate that’s in line with their current discounted mortgage rates, let them know that you’re going to do some comparison shopping.

Finding competing rate offers is as easy as typing “mortgage renewal rates” into Google, noting the most attractive offers and calling the lenders or brokers that provide them. It shouldn’t take more than an hour or two.

If you’re not comfortable negotiating or rate shopping, consider tagging in a mortgage broker. Over half of Canadians (55%) recently surveyed by NerdWallet believe they have to pay for a mortgage broker’s services, but that’s incorrect. Mortgage brokers get paid by lenders, not you, and can negotiate rates on your behalf.

Once you’ve found a renewal rate you’re happy with, go back to your current lender and see if they can match it. If not, notify them that you’ll be working with a new lender for your next term and get started on your application.

Where can you renew a mortgage?

Option 1: Renew with your current lender

Renewing your mortgage with your current lender is generally the path of least resistance. Whether you accept the first renewal offer you receive or negotiate a more acceptable one, you won’t be required to do much else besides sign your new contract and keep making your payments.

You won’t need to requalify, and if you’re borrowing from an A-lender, there shouldn’t be any renewal fees involved. Renewing a mortgage from a private lender, however, might cost you.

Some lenders allow you to renegotiate your interest rate before the end of your mortgage term through a blend-and-extend option. This allows you to extend your existing term at a lower rate by blending a new, current interest rate with the old one.

You may also be able to get a better interest rate or more favourable conditions in your mortgage contract if your lender is prepared to match other offers. Provide evidence of these offers to your current lender to use this tactic more effectively.

Option 2: Renew with a new lender

If your current lender isn’t able (or willing) to offer you a more beneficial rate than other lenders, you’re free to renew your mortgage elsewhere.

Renewing with a new lender can be a more involved process than renewing with your current lender, though the payoff may be worth the effort. You’ll need to:

Mortgage renewal rates

The mortgage renewal rate you’re offered could vary wildly from lender to lender.

Your current lender’s initial rate offer will be based on their current mortgage interest rates, and will likely skew closer to their posted mortgage rates than their cheaper discounted rates. Approach this first rate offer like you would the sticker price on a new car: it’s really only the basis for a negotiation.

Competing lenders might offer a lower rate for your renewal than your current lender. Lenders are always seeking new business, and swooping in to help stressed-out homeowners by offering lower mortgage renewal rates.

Keep in mind that switching lenders at renewal means requalifying. Until your income, debt and credit score have all been evaluated, you won’t know for sure what rate or loan amount you’ll actually be approved for.

What happens if your mortgage renewal is denied?

If your finances are solid and you’ve been a diligent mortgagor, your lender will typically offer to renew your mortgage. If your income’s been disrupted or you’ve missed payments over the course of the last term, however, your lender may not want to assume the increased risk and refuse to renew your mortgage.

When this happens, it’s not necessarily a reason to panic — especially if you started the renewal process early. B-lenders offer mortgages to borrowers with lower credit scores who can’t get approved at the Big Six banks.

Because they take on more risk, B-lenders tend to charge higher interest rates than chartered banks. But B-lender mortgages also are meant to be short-term solutions that last three years or less. During that time, you’re expected to get your finances in shape so that you’ll be able to renew with an A-lender at a lower rate once the next mortgage term expires.

If a B-lender won’t renew your mortgage, you may have to apply for financing at a private mortgage lender. The qualification criteria may be even looser than with B-lenders, but the rates and fees are likely to be much higher.

Renewal time, especially if you have concerns about what you can afford, can be an ideal opportunity to speak to a mortgage broker. An experienced broker may be able to introduce you to lenders — and rate offers — you don’t have access to.

Is renewing a mortgage the same as refinancing?

The two processes are similar in that they both result in a new mortgage contract, but renewing a mortgage is not the same as refinancing.

A renewal is an extension of a mortgage contract that might involve changes to the interest rate, amortization period or term. Refinancing a mortgage requires breaking your mortgage contract and signing a new one.