How a mortgage renewal works and what to compare before you sign
Most Canadian mortgages are paid off over many years but written in shorter terms, so renewing is something homeowners do several times. When a term comes to an end, the lender sends a renewal statement, and the homeowner decides whether to accept it, negotiate, or move to another lender.
The Financial Consumer Agency of Canada (FCAC) points out that most mortgage holders in Canada have a term of five years or less. Each time a term ends, the remaining balance is renewed under a new set of conditions. Those conditions can be different from the last ones, which is why it is worth reading the renewal statement carefully rather than treating it as a formality.
When the renewal statement arrives
If your mortgage is with a federally regulated financial institution, such as a bank, the lender must send you a renewal statement at least 21 days before the end of your current term. If the lender has decided not to renew your mortgage, it must also tell you at least 21 days before the term ends.
FCAC suggests not waiting for that letter. Its guidance is to start looking at your options a few months before the term ends, which leaves time to gather other offers without a rush.
If your lender is not federally regulated, different provincial rules may apply. Your lender can tell you which rules cover your contract.
What the renewal statement must include
For federally regulated lenders, FCAC lists the information the renewal statement has to contain:
- the principal amount that will be outstanding on the renewal date
- the interest rate
- the payment frequency
- the term
- any charges or fees that apply
The statement must also say that the interest rate offered will not increase before your renewal date.
Automatic renewal
Some lenders renew a mortgage automatically if the borrower does nothing. If your lender plans to do this, FCAC says the renewal statement will state it. FCAC also notes that an automatic renewal may mean you do not get the best rate and conditions available to you. Reading the statement as soon as it arrives, and noting whether automatic renewal applies, avoids surprises.
What to compare
A renewal is a chance to look at the whole structure of the mortgage, not only the rate. The table below sets out the main features FCAC describes, with the question each one answers.
| Feature | What it means | Question to ask yourself |
|---|---|---|
| Term | How long the contract and its conditions are in effect, from a few months to five years or longer | How long do I want these conditions fixed before the next renewal? |
| Rate type | A fixed rate stays the same for the whole term; a variable rate may rise or fall during the term | How would a change in payments or interest fit my budget? |
| Amortization | The total time it will take to pay off the mortgage | Do I want lower payments, or to pay less interest overall? |
| Prepayment privileges | How much extra you can pay toward the mortgage without a penalty | Am I likely to make lump-sum or increased payments? |
| Open or closed | Open mortgages allow extra payments more freely but usually have higher rates; closed ones usually have lower rates but limit extra payments | Might I sell, or pay off a large amount, during the term? |
| Payment frequency | Monthly, semi-monthly, biweekly, weekly, or accelerated biweekly or weekly | Which schedule lines up with how I am paid? |
A few of these deserve a closer look. FCAC explains that a longer amortization lowers each payment but means you pay more interest in total. It notes that extending amortization at renewal can raise total interest costs considerably. Accelerated payment options work out to roughly one extra monthly payment a year, which can reduce total interest. And if you pay more than your prepayment privileges allow, a prepayment penalty applies, so it helps to know the limits before you plan any extra payments.
FCAC also suggests a few personal questions to think about at renewal: whether your budget allows higher payments, whether you want to change how often you pay, whether you are satisfied with your current lender’s service, and whether you still need any optional insurance attached to the mortgage.
Shopping around and negotiating
You are not required to stay with your current lender. FCAC says you can contact other lenders and mortgage brokers and move your mortgage if another lender’s terms suit you better. A new lender will need to approve your application, and it may use different criteria from your current one.
Comparing offers can also help if you decide to stay. FCAC notes that your current lender may be willing to offer a lower rate than the one in the renewal letter, and suggests telling your lender about offers you have received elsewhere. You may be asked for proof of those offers, so keep them on hand.
Costs to consider if you switch
Moving a mortgage to another lender can involve costs. FCAC lists:
- fees from the new lender, which may include discharge, registration, transfer or assignment fees charged by your current lender
- an appraisal fee, if one is needed
- other administration fees
You can ask the new lender whether it will cover some or all of these costs. FCAC adds that mortgage loan insurance premiums may apply if you increase the amount of the loan or extend the amortization. If your mortgage is registered as a collateral charge, there may be extra fees to remove it, and any other loans secured by that charge, such as a line of credit, would need to be repaid or transferred.
Adding these costs to each offer gives a fairer comparison than looking at the rate on its own.
Common questions
Do I have to sign the renewal my lender sends?
No. FCAC says you can negotiate with your current lender or move your mortgage to another lender whose terms suit you better, subject to that lender approving your application.
When should I start comparing offers?
FCAC suggests starting a few months before your term ends rather than waiting for the renewal letter.
Can I change my amortization or payment schedule at renewal?
Renewal is a common time to review both. FCAC notes that a longer amortization lowers payments but increases total interest, and that more frequent or accelerated payments can reduce total interest.
This article is sponsored general information and does not constitute financial, legal or mortgage advice. JBV Consultancy OÜ is not affiliated with, endorsed by or acting for the Financial Consumer Agency of Canada, any other government agency, or any lender or mortgage broker. Mortgage terms, fees and rules vary by lender and by contract; please confirm the details of your own mortgage directly with your lender.
Official sources
- Financial Consumer Agency of Canada — Renewing your mortgage — renewal statement timing and contents, automatic renewal, shopping around, switching costs.
- Financial Consumer Agency of Canada — Mortgage terms and amortization — term, amortization, fixed and variable rates.
- Financial Consumer Agency of Canada — Choosing a mortgage that is right for you — open and closed mortgages, payment frequency.
- Financial Consumer Agency of Canada — Paying off your mortgage faster — prepayment privileges and penalties.
Fette Fische Bazar is a private, sponsored information website published by JBV Consultancy OÜ. It is not affiliated with the Government of Canada, Service Canada, the Canada Revenue Agency or any provincial government. This article is general information, not financial, tax or legal advice. Every amount in it is either a published government figure, quoted with its period, or an illustrative example; none is a promise or an estimate of what any reader will receive. Figures were checked against the sources above on and change over time. This website processes no applications and takes no fees. Never give your Social Insurance Number, banking details or a government account password to a website in response to an article; for your own file, use My Service Canada Account, CRA My Account or the official telephone lines.
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