It’s time to renew your mortgage: Should you make the switch?

POV: A mortgage agent from your current lender reaches out, letting you know that your mortgage is up for renewal. “Where does the time go?” you think to yourself. Once you come to terms with the fact that you’ve been a homeowner for long enough to renew your mortgage term, it’s time to think about renewing with the same lender or shopping around to get a better deal. 

While it may be tempting to email the agent back and simply let them know you’d like to renew, there are some reasons why switching your mortgage provider at renewal time could make sense. 

Understanding mortgage terms–and why you need to renew

Okay, so it’s time to break it down: A mortgage term is basically the amount of time you've agreed to pay back your home loan. In Canada, you're looking, on average, from two years to five years, for each term. And at the end of that term, you've got options. 

Generally, you could pay off the remaining balance–or a larger lump sum–if you've got the cash, or you could renew the mortgage for another term.

Renewing is a big deal because it gives you the chance to potentially get a better interest rate and more favorable terms. Think about it, when you first got your mortgage, you probably looked around for the best deal you could find. But over time, interest rates and terms change. 

So, renewing is like hitting the reset button and re-negotiating the deal you made with your lender–or even potentially looking around to make a switch. 

First off, how early can you renew your mortgage?

So your mortgage term is coming to an end and you're wondering what's next? Well, your lender will probably send you a renewal notice about a month before the term ends. But, the good news is that you can start talking to them about renewing as early as four months before the end of your term. 

To get a head start, just check your mortgage contract to find the end date and count back 120 days on a calendar. That way, you'll be all set to negotiate and shop around, to make sure you're getting the best deal possible!

And the best part about the renewal process? You can opt in for interest rate holds. Think of it as a safety net for your mortgage rate. You're about to renew your mortgage and you want to make sure you're getting the best deal possible, right? Well, an interest rate hold will keep your current rate locked in for a certain amount of time, so you can shop around and find the best deal without worrying about interest rates going up. 

Just like your renewal process, in Canada, you can usually hold a rate for up to 120 days. So, take your time and find the perfect rate, all while knowing that you're protected from any unexpected interest rate increases.

Why should you switch your mortgage? 

When your mortgage term is up for renewal, it’s a great time to evaluate your options. As mentioned, a typical mortgage term in Canada is five years, but terms can vary from a few months to ten years. So, renewal time is the ideal time to shop around for a new mortgage provider because you won’t be charged the usual penalties for breaking your mortgage early. However, there may be other administrative fees involved if you do decide to switch. 

You’re switching to get a more competitive rate 

The interest rate is obviously one of the most important considerations when it comes to deciding if you should switch your mortgage. Even a small difference in rate could end up costing you thousands in interest payments. Now is the time to shop around, but be sure that the rate you’re getting pre-approved for is the rate the lender can actually give you. You can use Pine’s mortgage calculator to determine how much you could save with different rates. 

If rates are currently higher than what you locked in at, your existing lender might be able to offer you a more competitive renewal rate compared to what’s currently on the market. 

You’re switching to get better mortgage terms 

While your mortgage rate is usually the first thing that comes to mind when renewing your mortgage, there are other features to consider. It’s also important to look at things like prepayment privileges—the amount you can put toward your mortgage either as a lump sum or on top of your payments. Prepayment privileges are helpful because they allow you to increase your payments and pay off your mortgage sooner without having to pay a penalty. 

Also, look at what the terms and penalties are when it comes to breaking a mortgage early with the new lender. How do they compare to your old terms in case you had to break the mortgage before renewal time? Also, breaking a variable mortgage is usually easier (and cheaper) than breaking a fixed-rate mortgage, but it all depends on the lender. 

You’re asking yourself if you should change your type of mortgage

If your mortgage term is up and you find yourself in an increasing-rate environment, you may be considering switching from a variable-rate mortgage to a fixed-rate option. 

With a variable-rate mortgage, your payments and interest rate fluctuate based on the prime rate, which is determined by the Bank of Canada (BoC). A variable-rate mortgage can be beneficial if mortgage rates decline, meaning you’ll pay less in interest over the course of your mortgage. But, if the prime rate increases, your rate and payments increase as well. It’s all about your appetite for risk and what you can realistically manage. 

The bottom line 

Whether you decide to renew with your current lender or switch to get a lower rate or better mortgage terms, it never hurts to get a second opinion. If you have any questions about your mortgage renewal, a mortgage agent would be happy to answer any questions you may have.