Paying off a mortgage at renewal? Pros, cons, and tips for 2025

This blog was written on January 10, 2025 and updated on May 30, 2025.

When your mortgage term comes to an end, you face a pivotal decision: do you sign on for another term, or pay it off completely and be done with it? Becoming mortgage-free sounds great, but is it the right move for you right now? Let’s break down the pros, cons, and how to do it without running into surprises.

Helpful resources for your mortgage renewal:

• Compare current mortgage renewal rates
• Use our mortgage renewal calculator to estimate your new payments
• Speak to mortgage broker for personalized renewal advice

Understanding your mortgage structure

Before you decide to pay off your mortgage at renewal, it’s important to understand how your mortgage is set up. There are two key time frames to know: the amortization period and the mortgage term. The amortization period is the total time it takes to repay your mortgage in full, often spanning 15 to 30 years. The mortgage term, typically ranging from one to five years, is the time period during which your interest rate, payment schedule, and other conditions are fixed.

Your mortgage type also plays a big role in how flexible your repayment options are:

• Open mortgages let you pay off your balance at any time without penalties, but the tradeoff is a higher interest rate.
• Closed mortgages usually come with lower rates, but they charge penalties if you pay off the loan early. 

How can I pay off my mortgage sooner?

Whether you have an open or closed mortgage, at renewal time, the mortgage is considered “open” for exactly one day. This is to allow for the process of starting a new mortgage term, whether with the existing lender or a new one. However, it also means that on this day the borrower has the flexibility to pay off as much of their mortgage as they like.

At this point, you have two options:

1. Pay off the entire mortgage

Paying off your mortgage in full involves making a lump-sum payment and discharging the mortgage. This process requires a real estate lawyer, who will:

• Obtain confirmation from your lender that the mortgage has been paid in full. In some cases, you may need to make a special request for this confirmation.
• Submit the confirmation to the local land registry office so that they may update your property’s title and remove the lender’s interest in the property from the title.

Once the land registry updates the property’s title, the mortgage is officially discharged, and the borrower is mortgage-free.

2. Pay off a portion and transfer the remaining balance

If you’re not quite ready to pay it all off, you can still reduce your balance with a lump-sum payment, then transfer the remaining mortgage to a new lender. Here’s how:

• Let your mortgage broker and lender know in advance how much you’ll be paying down.
• About a week before renewal, send a cheque for that amount to FCT (the closing service that handles lender transitions).
• Your payout statement will reflect the lower remaining balance, which your lender will use to finalize your new mortgage term.

This is also a great time to switch lenders to get a more competitive rate. Depending on your mortgage features, you may even access extra funds from your home’s equity for home renovations, education costs, or debt consolidation.

The advantages of paying off your mortgage early

If you’re in a strong financial position—maybe due to savings, a bonus, inheritance, or even a lottery win – paying a lump sum pre-payment at renewal can be a smart move. While it’s not the norm (few Canadians have that much cash on hand), it does come with clear benefits:

• Save on interest costs: By paying your mortgage balance, you can avoid paying additional interest over the remaining term or amortization period.
• Get financial flexibility: Freeing up the funds previously used for mortgage payments allows you to allocate money toward other financial goals, such as investments, retirement savings, or personal pursuits.
• Increase home equity: Once your mortgage is paid off, you fully own your home, giving you complete access to its equity if needed.
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The disadvantages of paying off the mortgage

There are potential disadvantages of paying off the mortgage​ at renewal:

• Liquidity concerns: Using a large lump sum to pay off the mortgage can leave you short on emergency savings or cash for other priorities.
• Missed tax benefits: If your mortgage interest is tax-deductible (as in some cases, such as for investment properties), paying it off early could mean losing this deduction.
• Prepayment penalties: Depending on your mortgage type, you can incur a penalty for paying off mortgage early, particularly if it's not renewal time or if the lender imposes restrictions.
• Lost investment opportunity: You might get a better return by investing that money elsewhere, especially if the markets or GICs offer higher growth potential.

Can you pay off your mortgage at renewal without penalty?

In most cases, yes, you can pay off your mortgage at renewal without penalty. When your term ends, your mortgage becomes “open” for that brief window, meaning you're free to pay off the full amount or make a large lump-sum payment without triggering prepayment charges.

That said, there are a few situations where penalties could still apply:

• You pay it off too early: Even paying a few days before the official renewal date could result in prepayment fees. Always confirm the exact date with your lender.
• You break the mortgage mid-term: If you're trying to pay off your mortgage before the term is up (not at renewal), expect penalties.
  • • • For variable-rate mortgages, the fee is usually three months’ interest.
      • For fixed-rate mortgages, it’s typically the greater of three months’ interest or the interest rate differential (IRD).
• You exceed lump-sum limits: Some closed mortgages allow limited prepayments (e.g., 10–20% of the original balance annually), but anything beyond that during the term may result in charges.

If you're planning to switch lenders after paying off a portion, you’ll also want to time everything carefully so your payment and transfer line up with your renewal date.

Common mistakes to avoid when paying off your mortgage

Before you pull the trigger to pay off your mortgage at renewal, watch out for these common mistakes that could undercut the benefits.

1. Draining your savings

Using all your liquid assets to pay off your mortgage might seem like a smart move, but it can leave you financially exposed. Emergencies, such as unexpected medical bills, home repairs, or job loss, can arise at any time. Without adequate savings, you may need to take on high-interest debt or dip into retirement accounts, jeopardizing your long-term financial security.

Before paying off your mortgage, ensure you have a robust emergency fund that can cover 3–6 months of essential expenses. 

2. Ignoring fees

Paying off your mortgage early doesn’t always mean you’re free of costs. If you’re paying a portion of the mortgage and switching to a new lender, you may incur additional fees such as:

• Setup fees with the new lender 
• Fees to discharge your old mortgage and register your new mortgage
• Transfer or assignment fees from your current lender
• Appraisal fees to confirm the value of your property
• Administration fees
• Legal fees

Factor these costs into your decision to ensure that paying off your mortgage early is still beneficial.

3. Not shopping around

Even if you plan to pay off most of your mortgage at renewal, shopping for the best renewal rates on any remaining balance is crucial. Your existing lender may not offer the most competitive terms, as they assume you’ll renew without question. By exploring the market or working with a mortgage broker, you might secure a lower rate, saving money over the term of the remaining loan.

The bottom line

While it is possible to pay off your mortgage at renewal, consider whether your lump sum of money could be put to better use. For example, your lump sum of cash may serve you better if you invest it in the stock market or use it to pay off high-interest credit card debt.

That said, if you’re dreaming of the day when you no longer need to make mortgage payments, paying off your mortgage on your renewal day is possible and may be the right financial strategy for you.

Also read:

• Mortgage pre-payment guide
• Should you switch from a variable-rate to a fixed-rate mortgage?
• What happens if your mortgage renewal is denied?
• 5 tips for mortgage renewal time
• The trigger rate: Everything you need to know