A mortgage-renewal letter can make the decision feel simple.
Your lender gives you:
- a rate;
- a term;
- a payment;
- and a place to sign.
But another mortgage term may last several years.
That deserves more than an automatic signature.
The Financial Consumer Agency of Canada recommends shopping around before renewal and says you do not have to renew with the same lender. It also recommends beginning the process a few months before the end of the term rather than waiting for the renewal letter.
Here are the questions worth reviewing first.
1. Has your financial situation changed?
Think back to when the mortgage was originally arranged.
Since then:
- has your income changed?
- did you start a business?
- has your business grown?
- did you take on new debts?
- did you pay significant debt down?
- did you acquire another property?
- has your household changed?
Your next mortgage term should reflect your circumstances now, not the circumstances you had several years ago.
2. What are your plans for the property?
Ask:
Do I expect to stay here for the whole term?
Might I sell?
Could I move?
Do I expect to refinance?
Will I want to access equity?
A five-year mortgage can look attractive until you discover that breaking it after two years could be expensive.
The mortgage term should make sense in the context of your plans.
3. What rate is your current lender offering?
Compare the renewal rate against other options available to you.
Do not assume the first number in the renewal letter is automatically the lender’s best possible offer.
FCAC specifically recommends negotiating with your current lender and comparing offers from other lenders or mortgage brokers.
But do not stop at rate.
4. What features come with the mortgage?
Compare:
- prepayment privileges;
- payment-increase options;
- portability;
- potential penalties;
- fixed or variable structure;
- refinance restrictions;
- and other contractual features.
A lower rate can be worth less if the mortgage becomes expensive or restrictive when your plans change.
5. Do you expect to make lump-sum payments?
This can be particularly relevant to business owners.
Your cash flow may not arrive evenly.
You may receive:
- dividends;
- bonuses;
- commissions;
- or larger business distributions at irregular intervals.
If you expect to use some of that money to pay down the mortgage, compare prepayment privileges before renewing.
6. Are you actually renewing—or refinancing?
These are not the same thing.
If you want to:
- increase the mortgage amount;
- consolidate debt;
- access equity;
- extend the amortization;
- or materially restructure the financing,
you may be moving beyond a straightforward renewal.
That can change the underwriting requirements, costs and mortgage options.
Identify the objective first.
7. What would it cost to switch lenders?
Moving a mortgage can involve costs.
FCAC notes that potential switching costs can include:
- setup costs;
- discharge, registration, transfer or assignment fees;
- appraisal costs;
- and other administrative costs.
Some new lenders may cover some switching expenses, but that should be confirmed rather than assumed.
Compare the total economics.
Saving a small amount of interest may not be meaningful if the transaction costs more than the savings.
8. When will the formal renewal notice arrive?
For mortgages with federally regulated financial institutions, the lender generally must provide the renewal statement at least 21 days before the end of the existing term.
That is a disclosure deadline.
It is not a recommendation to wait until three weeks before maturity.
Starting earlier gives you time to compare without pressure.
A simple renewal checklist
Before signing, know:
- Current mortgage balance
- Remaining amortization
- Current lender
- Renewal date
- Renewal rate offered
- Proposed term
- Proposed payment
- Prepayment privileges
- Penalty structure
- Whether you may move
- Whether you may refinance
- Whether your income situation has changed
- Costs of switching, if applicable
Then make the decision.
The takeaway
Renewal is not paperwork.
It is the moment you decide how your mortgage will work for the next term.
Sometimes staying with the current lender is the best choice.
Sometimes switching is better.
The value is knowing why you chose one.
Next step
Compare the current offer, your plans and available alternatives before committing to another term.
General information only. Mortgage products, rates, switching costs and qualification requirements vary by lender and borrower circumstances.