Should you refinance, renew or switch your mortgage?

Homeowners in Canada may find themselves at a crossroads when it comes to deciding what to do with their mortgage over time. As interest rates change and your financial situation evolves, you may find yourself wondering whether you should refinance, renew, or switch your mortgage. Each of these options has its own set of benefits, but it's important to evaluate your personal financial situation as well as consider certain factors before making a decision.

What does it mean to refinance your mortgage?

Refinancing your mortgage involves renegotiating your current mortgage for a new one, often to help consolidate debts or pull your home equity to pay for renovations or other expenses. 

Overall, refinancing can be done with your current lender or with a new one if you decide to change. When you refinance your mortgage, you may be able to negotiate a new interest rate or change the terms of your mortgage agreement. This can be a good option if you want to save money on your monthly mortgage payments or pay off your mortgage faster. 

Benefits of refinancing

One of the primary benefits of refinancing is that it can save you money. If interest rates have gone down since you first took out your mortgage, you may be able to refinance at a lower rate, which could save you thousands of dollars in interest over the life of your mortgage. Additionally, if your credit score has improved since you first took out your mortgage, you may be able to qualify for a lower interest rate.

Refinancing can also be a good way to access the equity in your home. If your home has increased in value since you first bought it, you may be able to refinance your mortgage and take out a portion of the equity as cash. This can be a good way to pay for home renovations, debt consolidation, or other large expenses.

Factors to consider:

• Closing costs: Refinancing your mortgage can involve closing costs, such as appraisal fees, legal fees, and prepayment penalties. These costs can add up, so it's important to factor them into your decision.
• Eligibility: Refinancing your mortgage requires you to meet the lender's eligibility criteria and go through the stress test again, which includes evaluating credit score, income, and debt-to-income ratio.
• Mortgage term: If you're extending the term of your mortgage, you'll be paying interest for a longer period of time, which could ultimately cost you more in the long run. Be sure to weigh the potential savings against the costs of refinancing before making a decision.

Curious to know how much you can refinance from your home? Our refinance calculator is a helpful tool to guide you along the way. 

What is a mortgage renewal?

Mortgage renewal is the process of renewing your mortgage with your current lender. When your mortgage term is up, typically every one to five years, you have the option to renew your mortgage for another term. This is a good option if you’re happy with your current lender and mortgage terms, but want to negotiate a new interest rate.

Benefits of renewing

Renewing your mortgage can be a simple process – your lender will likely offer you a few renewal options, including different interest rates and mortgage terms. This option allows you to take advantage of lower interest rates, and the possibility of negotiating lower monthly payments by extending the term of your mortgage.

One of the main benefits of renewing your mortgage is that it can be relatively hassle-free. You won't have to go through the application process again, and your lender will already have all of your information on file. Additionally, if you're happy with your current lender, renewing your mortgage can be a good way to maintain that relationship.

‍Factors to Consider:

• Negotiating power: When renewing your mortgage, you have the opportunity to negotiate with your lender for a better interest rate or more favourable mortgage terms. Take advantage of this opportunity and use any leverage in order to get the best deal. 
• Shop around: Even if you decide to renew with your current lender, it's still a good idea to shop around and compare rates from other lenders. This can help you make sure you're getting the best deal possible and pay off your mortgage as early as you can.

What does it mean to switch your mortgage?

Mortgage switching involves moving your mortgage from one lender to another. This can be done at any time, not just at the end of your mortgage term. When you switch your mortgage, you can negotiate new terms and interest rates with the new lender. This can be a good option if you're not happy with your current lender or if you want to take advantage of lower interest rates.

Benefits of switching

One of the main benefits of switching your mortgage is that it can save you money. If you've been with your current lender for a while, you may be paying a higher interest rate than what’s currently out there. Switching to a new lender with a lower interest rate could save you thousands of dollars over the life of your mortgage. Additionally, it can be a good way to take advantage of more flexible mortgage terms. If your financial situation has changed since you first took out your mortgage, you may want to switch to a lender that offers more flexible payment options, such ​​as a shorter mortgage term or the ability to make prepayments without penalty.

Factors to consider:

• Fees: Switching your mortgage can involve fees such as discharge fees and appraisal fees, as well as pre-payment penalties with your current lender, so it's important to factor these into your decision and do some calculations to see if this makes the most sense for you. 
• Eligibility: Like refinancing, switching your mortgage requires you to meet the lender's eligibility criteria and go through the stress test once more. 
• Customer service: While a lower interest rate may seem attractive, it's important to make sure that you're comfortable with the level of customer service and support offered by the new lender.

The bottom line: Decide what’s best for your finances

Whether you refinance, renew, or switch your mortgage will depend on your personal financial situation and long-term goals. Refinancing can be a good way to save money or access home equity, renewing your mortgage can be a hassle-free option if you're happy with your current lender, and switching your mortgage can be a good way to save money and take advantage of more flexible mortgage terms. 

Before making any decisions, it's always a good idea to consult with a financial advisor or mortgage professional who can help you assess your options and make an informed decision based on your personal financial situation and goals. If you’re looking to explore one of these options further, one of Pine’s mortgage agents would be happy to help you through this process.