Mortgage Refinance vs Renewal - Understanding the Difference
When you secured your last home mortgage, the contract was set for a specific term, typically 1 to 5 years. As the end of each term approaches (until the mortgage is paid in full or the property is sold), you’ll need to arrange a new mortgage contract—either through renewal or refinancing.
Mortgage Renewal means extending your mortgage into a new term, often with the same lender, without changing the loan amount or the amortization period (the length of time to repay the mortgage).
Your current lender will typically send a renewal notice but not always so it is important that you contact a Mortgage Broker or your lender about 4 months prior to your renewal date at least because if you decide to switch lenders and opt into a better product & rate, you will need to re-qualify. There are usually no costs to renew your mortgage or to switch lenders.
Most lenders know that people are busy and often leave things to the last minute. As a result, they will offer less competitive rates at renewal, hoping you’ll accept their offer without exploring other options. If you “trust your lender” without doing your own research, you will likely end up paying higher rates & extending the time it takes to pay off your mortgage.
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Mortgage Refinancing, however, involves obtaining a completely new mortgage, offering greater flexibility. You can modify key terms such as the repayment period, monthly payments, or even add or remove borrowers. Refinancing also allows you to access the equity in your home for cash.
Refinancing can be done at any time during your mortgage term but to avoid a mortgage break penalty, it is best to wait until your mortgage renewal date is 4 months away or less. Refinancing can involve switching lenders or staying with your current one but you will need to re-qualify for the new mortgage based on your current financial conditions.
- Accessing home equity (e.g., for renovations, investments, or debt consolidation)
- Securing a lower interest rate.
- Reducing your mortgage payment / managing cash flow.
- Changing the mortgage type ie: (HELOC, Reverse / Equity release) or term length.
- Removing a partner from a mortgage, for example a divorce or relationship breakdown.
The cost associated with a refinance are typically an appraisal fee, legal fees, and possibly a new mortgage insurance premium. If you are breaking the existing mortgage contract before the renewal date, there could be a significant payout/break penalty (ask your current lender).
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It is ALWAYS a good idea to contact a Mortgage Broker and not automatically renew your mortgage. Both options carry financial implications, so it’s crucial to evaluate your long-term goals and financial situation when deciding between renewing or refinancing. We leave no stone unturned & want to ensure our clients are getting the best value & aligned with their financial goals.