Mortgage Renewal: What It Is, How It Works

What Is a Mortgage Renewal?

A mortgage renewal is a process for renewing your mortgage when your term is up. With renewable mortgages, you’re required to renew your mortgage each time it ends until your mortgage is paid in full. It’s normal to have multiple mortgage terms until you’ve paid off your loan. Mortgage renewals aren’t common in the United States, but they’re seen more often in Canada.

How Mortgage Renewals Work

Canadian homeowners will get a mortgage for a set amount of time, known as the term, ranging from a couple of months to a few years. When their terms are coming to a close, they must either renew the mortgage or pay their remaining balance in full.

You’ll receive a notice from your mortgage lender at least 21 days before the end of your current term. If your lender opts not to renew your loan, you’ll also receive that notice 21 days before your term ends. You can renew your mortgage with a new lender to potentially secure a lower interest rate.

In your renewal statement, you’ll get important details, including:

• Your current balance
• The interest rate
• The payment frequency
• The term and corresponding start date
• Any additional fees, if applicable

A mortgage renewal is not the same as refinancing. Refinancing allows you to take out a new loan with a new lender, with new repayment terms and a new interest rate. That loan will pay off your existing home loan and you’ll then make payments to your new, refinanced loan. In contrast, a mortgage renewal is almost like a contract extension of what you currently have.

Can You Renew Your Mortgage in the United States?

Mortgage renewals aren’t typically available in the U.S., although you might have the option to do so if you live in the U.S. but have a Canadian mortgage lender. Keep in mind that this isn’t common, so you’ll need to check with your lender to see if a mortgage renewal opportunity is available.

How to Prepare for Your Mortgage Renewal

If you’re ready to renew your mortgage, take a few steps to ensure it goes smoothly.

1. Review Your Current Mortgage Agreement

Look at what your current mortgage contract says and compare it to your renewal statement. This is important because it’ll help you figure out if the renewal offer is more or less favorable for you.

You’ll want to determine if your renewal is in line with market trends and rates. For instance, will your new interest rate be more or less than what you pay now? Will your payment frequency ensure higher or lower monthly payments?

2. Assess Your Financial Situation

See what your finances look like and consider how the renewed mortgage would affect you. For instance, can you afford to pay off your loan balance at the end of your current term? If not, what would your monthly payments look like if you renewed your mortgage for three years, five years, or seven years? Calculate a payoff plan and see what it might take to reach your goal.

3. Shop Around for Mortgage Lenders

While a mortgage renewal may be one option, it’s not your only one. Take some time to compare your renewal contract with what’s available from new mortgage lenders. You might find offers with better payment frequencies, lower interest rates, or both. You can shop around for a new mortgage a few months before your current term ends. You can also use these comparisons as a negotiating tool with your current lender and potentially secure a more favorable renewal offer.

4. Gather Documents

When you’ve decided on the offer, it’s time to gather any important documents needed to renew your mortgage. This might include financial documents, bank statements, credit reports, etc. Once you have everything ready, you should be able to complete your renewal quickly.

The Bottom Line

For Canadian homeowners, mortgage renewals are a time for you to assess your current financial situation. You might find that you can pay off your current mortgage, or you can negotiate with your lender for a more favorable agreement. There’s also a chance you can switch lenders after your current term is up. Take the time to review your mortgage contract and compare your options.