Renewing vs. Refinancing Your Mortgage

Making the Right Choice for Your Canadian Home

As a Canadian homeowner, navigating the world of mortgages can be tricky. Two key concepts you'll encounter are mortgage renewals and refinances. While they may sound similar, they serve distinct purposes. Understanding the difference between these options will empower you to make informed decisions when it comes to your mortgage.

Renewing Your Mortgage

A mortgage renewal happens at the end of your current term, typically every 5-10 years. It's essentially an extension of your existing mortgage with a new interest rate and term based on current market conditions. Here's what a renewal involves:

Simplicity: Renewals are a streamlined process. Your lender will typically send you a renewal offer outlining the new terms. You can then choose to accept it, negotiate a better rate, or explore options with other lenders.
No Cost (Usually): Renewing with your current lender often comes with no extra fees. However, it's always wise to shop around for the best rates.
Maintaining Your Payment Structure: Renewals typically keep your current amortization schedule intact, so your monthly payments remain consistent.

When to Consider a Renewal:

You're happy with your current mortgage terms and lender.
You don't require any changes to your loan amount or amortization schedule.
You prioritize a quick and hassle-free process.

Refinancing Your Mortgage

A mortgage refinance involves replacing your current mortgage with a completely new one. This allows you to make significant changes to your loan, such as:

Lowering Your Interest Rate: This can lead to significant savings over the long term.
Extending Your Amortization Period: This reduces your monthly payments but extends the time it takes to pay off your mortgage.
Shortening Your Amortization Period: This increases your monthly payments but helps you pay off your home faster.
Accessing Home Equity: You can borrow additional funds against the value of your home for renovations, debt consolidation, or other needs.

Interest Rate Considerations:

One crucial factor to consider when renewing your mortgage is the current interest rate environment. For many Canadians renewing now (in June 2024), fixed mortgage rates are higher than they were five years ago. This can make a difference in your monthly payments and overall borrowing costs.

Here are some resources to help you compare historical and current mortgage rates:

Ratehub.ca Historical Mortgage Rates

Renewing vs. Refinancing with Higher Rates:

Given the current higher interest rate environment, here's how it might affect your decision between renewing and refinancing:

Renewal: If you were happy with your previous low rate and don't require any changes to your loan, a renewal might still be the most straightforward option. However, the new rate will likely be higher than your previous one, leading to increased monthly payments.
Refinancing: If you find a significantly lower interest rate than your renewal offer, refinancing could be an option to explore. However, remember to factor in prepayment penalties and closing costs associated with refinancing.

Seeking Expert Advice:

Consulting with a mortgage broker such as myself becomes even more critical in a higher interest rate scenario. I can help you:

Negotiate a Better Renewal Rate: Even with higher rates, a broker can advocate for you with your lender to get the best possible renewal rate.
Explore Refinancing Options: A broker can help you assess the potential benefits and costs of refinancing and find lenders offering competitive rates.
Develop a Long-Term Strategy: If the current rates aren't ideal, a broker can help you create a plan to potentially refinance in the future when rates might be lower.

By understanding the impact of higher interest rates and seeking professional guidance, Canadian homeowners can make informed decisions when renewing their mortgages.