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Mortgage Renewal vs Refinance_ What You Need to Know

A mortgage renewal occurs when your current mortgage term ends and you sign a new agreement with your lender. You keep the same mortgage balance and amortization schedule, but you negotiate new terms such as the interest rate and payment structure.<br>

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Mortgage Renewal vs Refinance_ What You Need to Know

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  1. Mortgage Renewal vs Refinance: What You Need to Know When your mortgage term ends in Canada, you must decide whether to renew your mortgage or refinance it. While both involve updating your mortgage agreement, they serve very different purposes. Choosing the wrong option could cost you thousands of dollars—or prevent you from accessing valuable equity. What Is a Mortgage Renewal? A mortgage renewal occurs when your current mortgage term ends and you sign a new agreement with your lender. You keep the same mortgage balance and amortization schedule, but you negotiate new terms such as the interest rate and payment structure. In Canada, mortgage terms usually last 1, 3, or 5 years. Your lender is legally required to send a renewal notice at least 21 days before your term expires. However, most experts recommend reviewing your options 120 days before renewal, giving you time to shop around for better rates. How Mortgage Renewal Works During a mortgage renewal, your lender will present you with new terms. These may include a fixed or variable rate, the term length, and options to adjust the payment frequency. You can accept these terms or negotiate a better deal. Unlike refinancing, renewal is usually a simple process with minimal paperwork. If you stay with your current lender, you typically do not need to go through another stress test or requalify. Benefits of Mortgage Renewal 1. Simple and Convenient Process

  2. Renewing your mortgage with the same lender requires minimal effort. Most lenders offer a quick renewal process without income verification or complete documentation. 2. No Fees in Most Cases There are usually no legal or appraisal fees involved in renewal. Even if you switch lenders, many offer promotions to cover transfer costs. 3. Opportunity to Negotiate Lower Rates Renewal gives you a valuable chance to negotiate a better interest rate. Even a slight rate reduction can save you thousands over the next term. 4. No Mortgage Stress Test (with the Same Lender) If you renew with your existing lender, you avoid requalification under federal stress-test guidelines, which makes renewal more beneficial if your financial situation has changed. What Is Mortgage Refinancing? Mortgage refinancing is when you replace your existing mortgage with a new one, either with your current lender or with a different one. Refinancing gives you the ability to change the mortgage amount, the amortization period, the interest rate type, and the overall structure of your mortgage. Many homeowners choose to refinance to access their home equity, consolidate debt, or secure a lower interest rate. How Mortgage Refinancing Works Refinancing involves applying for a new mortgage. This includes: ● A full mortgage application ● A credit check ● Income verification ● Appraisal of the property ● Legal documentation

  3. If you refinance before your mortgage term ends, you may face prepayment penalties. However, if you refinance at the time of renewal, you can avoid penalties. Benefits of Mortgage Refinancing 1. Access to Home Equity Refinancing allows you to borrow up to 80% of your home’s value. This money can be used for home renovations, investments, education, or emergencies. With rising home prices in Canada, many homeowners have built significant equity. 2. Debt Consolidation Options You can combine high-interest debt—such as credit cards, personal loans, and car loans—into a low-interest mortgage. This reduces monthly payments and simplifies your financial life. 3. Ability to Change Your Mortgage Structure Refinancing gives you the power to change from: ● Variable to fixed rate ● Fixed to variable rate ● Short-term to long-term ● Standard mortgage to a HELOC This flexibility can help you match your mortgage to your financial goals. 4. Potential to Lower Your Interest Rate If rates have dropped significantly since you got your mortgage, refinancing can reduce your interest costs dramatically—even after penalties. Mortgage Renewal vs Mortgage Refinance: Key Differences Below are the significant differences between renewing and refinancing a mortgage: 1. Timing ● Renewal happens at the end of your mortgage term.

  4. ● Refinancing can happen at any time. 2. Qualification Requirements ● Renewal usually does not require requalification. ● Refinancing requires a complete application, credit check, and documentation. 3. Cost Involved ● Renewal is typically free. ● Refinancing may include legal and appraisal fees, as well as penalties if done mid-term. 4. Changes to the Mortgage Amount ● Renewal does not allow you to borrow more. ● Refinancing allows you to increase your mortgage and access home equity. 5. Ideal Use ● Renewal is ideal when you want to secure a better rate. ● Refinancing is perfect when you want to restructure your mortgage or borrow additional funds. Costs Associated with Mortgage Renewal Mortgage renewal is generally low-cost. If you stay with your existing lender, you may pay: ● Zero legal fees ● Zero appraisal fees If you choose to switch lenders, you may have: ● Appraisal costs ● Legal fees ● Discharge fees However, most lenders will cover these costs to attract new clients.

  5. Costs Associated with Refinancing Refinancing can be more expensive, especially if it happens before your mortgage term ends. Typical costs include: 1. Prepayment Penalties These can be: ● Three months’ interest (variable rate) ● Interest Rate Differential (fixed rate) 2. Appraisal Fees An appraisal is often required to determine your home’s current market value. 3. Legal Fees A lawyer must register your new mortgage, which may cost between $800 and $1,500. 4. Title Insurance This protects against title-related issues and is usually required during refinancing. While the costs can add up, refinancing can still save you money if it significantly reduces your interest rate or consolidates high-interest debt. When Should You Choose Mortgage Renewal? You should consider renewal when: ● Your current lender offers competitive rates ● You want an easy, no-fee process ● You don’t need access to additional equity ● You don’t want to undergo financial requalification ● You want to keep the same mortgage structure Renewal is ideal for homeowners who want to secure a better rate while keeping their current mortgage structure.

  6. When Should You Choose Mortgage Refinancing? Refinancing is the better choice when: ● You need cash for renovations, investments, or significant expenses ● You want to consolidate high-interest debt ● You want to switch mortgage types (e.g., variable to fixed) ● You need to adjust your amortization ● Your interest rate is significantly higher than current market rates Refinancing is best for homeowners looking to restructure their mortgage or access equity for financial growth. How to Choose Between Renewal and Refinancing Choosing between renewal and refinancing depends on your goals. 1. Consider Your Financial Needs If you only want a new rate, choose the renewal option. If you are going to borrow more money, select refinancing. 2. Evaluate Current Interest Rates If market rates have fallen significantly, refinancing may help you save more than renewal. 3. Check Your Home Equity Homeowners with significant equity may benefit from refinancing to access funds for opportunities or to consolidate debt. 4. Review Penalties If penalties are too high, refinancing mid-term may not be worth it—wait until renewal. 5. Speak With a Mortgage Broker

  7. A broker can calculate your savings and help you understand which option benefits you most. Tips to Get the Best Deal on Your Mortgage Renewal or Refinancing 1. Start Shopping Early Begin comparing rates at least 3–4 months before your renewal date. 2. Improve Your Credit Score A stronger credit score increases your chances of securing lower rates. 3. Compare Multiple Lenders Do not accept your lender’s first offer—shop around for better deals. 4. Look for Prepayment Privileges These help you pay down your mortgage faster and reduce your interest costs. 5. Ask About Promotions or Cashbacks Many lenders offer incentives that can offset the costs of switching or refinancing. Final Thoughts Understanding the difference between mortgage renewal and mortgage refinancing is essential for making the best financial decision. Renewal is simple, cost-effective, and ideal for securing better rates. Refinancing is more flexible and powerful, allowing you to access equity, consolidate debt, and restructure your mortgage. Contact us for more information

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