This article was originally written by Alyssa Furtado on August 18, 2014 and was updated on February 12, 2024.
Most mortgages need to be renewed at least once before they’re eventually paid off. Unless you have the cash to pay off your balance in your first mortgage term, you’re likely part of the 3.4 million Canadians who are set to renew their mortgage by the first quarter of 2025.
Additional data from the Bank of Canada finds roughly $251 million in mortgages will be up for renewal in this year alone, followed by another $352 billion in 2025; in fact, 80% of all the mortgages loans that were in force as of February 2022 will go through renewal in 2024, with “virtually all” outstanding loans renewing by 2026.
A key challenge facing these borrowers is that they’ll be renewing their mortgages in a considerably higher interest rate environment; both fixed and variable mortgage rates have soared by over 400 basis points since their pandemic-era lows. The BoC forecasts that, depending on the type of mortgage they have, renewing borrowers can expect their monthly payments to increase between 25 - 54%.
With this in mind, it’s more important than ever that mortgage holders understand their options at renewal time, and make a strategic choice to help minimize the impact of potentially higher payments.
What is a mortgage renewal?
A mortgage renewal is simply the process of taking the outstanding balance of your mortgage and renewing it for another term at a new (and hopefully lower) mortgage rate.
If you don’t already have the maturity date (the date your mortgage term ends) pencilled into a calendar, you’ll know it’s time to renew when your current mortgage provider sends you a renewal slip in the mail. The slip includes a new mortgage rate and term offer, which you can sign and send back.
However, it’s in your best interest to take a more proactive approach, especially in today’s rising interest rate environment. As the Bank of Canada has increased its key Overnight Lending Rate a historic 10 times between March 2022 and July 2023, variable mortgage rates have increased considerably; today’s lowest variable-rate pricing is 5.95%, compared to the 0.9% available in the first months of 2022. Fixed mortgage rates have also been on the rise, in response to increasing bond yields, which hit a 16-year high of 4.42% in October. As of the end of January, that has settled back down to the 3.5% range, but fixed rates remain elevated compared to early 2022, with the lowest available today at 4.84%.
Overall, if you’re renewing your mortgage in 2024, you’ll almost certainly be taking on a higher mortgage rate than you had five years ago.
Here are our top mortgage renewal tips for reducing that financial impact:
1. Consider your current financial goals
Before you sign your mortgage renewal slip and send it back, you should first review your financial goals. You want to be sure your current provider can offer a mortgage product that suits your needs. For example, if your current mortgage term is a 5-year fixed rate, the renewal slip will likely be for another 5-year fixed. If you think you’ll stay in your home for that amount of time, great. But if you know there’s a chance you’ll downsize or potentially move to a new city in the next few years, you may want to look for a 3-year product instead.
Other financial goals to consider may be how extra money (like an inheritance) could affect the pre-payment options you want. As well, consider whether it makes sense to refinance your mortgage or get a HELOC to access equity. You may also want to think about refinancing if you need to extend your amortization period in order to reduce your monthly mortgage payments - you can use our amortization calculator to see what your monthly payments would be in different amortization length scenarios. Knowing what you need in a mortgage should help you form the decision around which lender and product to choose.
2. Start to shop around early
Just how soon can you renew a mortgage? Sure, you may be a few months away from your mortgage maturity date, but they say the early bird gets the worm! This phrase rings especially true with the mortgage renewal process.
While your current lender will likely send you that renewal slip some time in the last 30 days of your mortgage term, you can usually start negotiating as early as 120 days before your maturity date. To ensure you’re ready, find the maturity date on your mortgage contract (it may also be visible through online banking) and count 120 days back on a calendar.
If you can’t negotiate a better offer with your current lender, this gives you time to start considering switching providers. You may not be able to switch your mortgage over until your actual renewal date arrives, but this gives a mortgage broker time to give you mortgage renewal advice and find the best product. It also allows time to get the paperwork ready so you’re not left scrambling at the last minute.
3. Ask for a better mortgage rate
With those little mortgage renewal slips, lenders make it too easy for you to answer the "should I renew my mortgage now?" question by providing a quick and easy way to renew. They know you’re busy and that you’ll pay for this convenience. On average, mortgage providers only offer their existing customers a discount off their posted rate on a renewal slip. But this isn’t the lowest possible rate, even from your current lender. On top of that, there are usually lower rates available from other lenders.
Negotiating mortgage renewal for a better rate becomes even more important in a rising rate environment, such as the one we are in today. Here’s a chart outlining how much you could save by asking for a better rate on a $500,000 mortgage with a 25-year amortization.
Let’s say your mortgage matures next month and that you had previously agreed to a 5-year fixed rate at 2.99%. Your current lender may offer you a discount of 0.25% off the posted rate of 6.22% for a new rate of 5.97%.
That would mean monthly payments of $3,190. However, shopping around could allow you to find a much better rate for the next five years. Maybe you’ll secure a 5-year fixed rate at 5.54%. If you were to qualify at that rate, your monthly payments would be a more manageable $3,064, saving you $126 per month.
Some people are too scared to try and negotiate with lenders; they think that what they see is what they get, but it’s simply not true. You can ask for a better mortgage rate and, if they want your business, they will offer you one. And if they can’t, you should shop around. Being able to access the best mortgage rate is one of the most popular reasons people switch providers at renewal time.
4. Get a rate hold
When you shop around for a better rate, a good strategy is to use a mortgage broker. Rather than having to go from lender to lender, a mortgage broker can pull your credit report once and find a list of lenders who will work with you along with the best rates they can offer. Your mortgage broker can easily tell you what rate you could qualify for if you choose to switch lenders.
This process can happen very quickly, often at the first appointment. If you aren’t ready to make a decision, for example, if you want a chance to let your current lender match that rate, ask your mortgage broker for a rate hold. Rate holds protect you from interest rate increases for up to 120 days. If interest rates go down during that time, don’t worry, you can negotiate down to that new lower rate, too. Rate holds lock in the rate if you’re worried rates will rise before you’re up for renewal.
5. Give yourself time to switch lenders
If you decide to switch lenders, you may be wondering – when should I start looking to remortgage? The answer is as early as possible. You’ll need to submit a mortgage application as though you are applying for a new mortgage, which means you’ll need to provide documentation including:
- Copy of your mortgage renewal letter
- Proof of income
- Proof you own your home
- Proof of property insurance
It usually takes a mortgage broker over a week to process your application, so make sure to leave plenty of wiggle room between when you start the process and when your mortgage is due to renew, otherwise you may end up being stuck with your current lender at a less than optimal rate for your next mortgage term.
The risks of not comparing mortgage rates
It may seem like a lot of effort to shop around for a new lender, and the payoff (saving a few percentage points off your mortgage rate) may not seem worth it at first. However, not shopping around could leave you financially vulnerable. This vulnerability is due to something called ‘interest rate risk’. Interest rate risk occurs when your mortgage is expected to renew at a higher rate, putting more financial strain on your budget. During the pandemic, many highly indebted Canadian households took advantage of historically low rates and took on mortgages, which in turn subjected them to interest rate risk. In the wake of successive, substantial rises in interest rates over the course of 2022 and 2023, understanding interest rate risk is more important than ever.
Interest rate risk occurs in three scenarios for homeowners in Canada, wherein rising interest rates affect you immediately:
- If you have a variable-rate mortgage
- If you have a fixed-rate mortgage coming up for renewal
- If you have a home equity line of credit with a variable interest rate
In these cases, renewing your mortgage at a higher rate (or refinancing to access equity) could add hundreds of dollars to your monthly mortgage payment, as we saw in the example above. Whether you are choosing renewal vs. refinance, the bottom line is the same: these hundreds of dollars could be the difference between paying down debt and just making ends meet. For this reason, it’s important to take the time to shop around for the best mortgage rate – your financial prosperity depends on it.
The bottom line
Renewing your mortgage can be quick and easy with your current lender. However, signing that renewal slip and sending it back won’t get you the best mortgage rate or product. By following these tips, doing your research, and working with a mortgage broker who can provide you with mortgage renewal advice and tips, you’ll get the best lender, terms, and rate for your current financial situation.
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