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What Is The Difference Between Renewing And Refinancing A Mortgage?

As a homeowner, you should make changes to your mortgage. This usually means deciding between mortgage renewal vs refinance options.

In Canada, a mortgage renewal occurs when your term ends, allowing you to renew or change your agreement with your lender. A refinance, however, can happen at any time, allowing you to adjust your mortgage to meet your needs. Understanding the difference between refinance vs renewal is essential to make the right decision for your financial goals.

This guide will explain the difference between mortgage refinance vs renewal and help you decide which option is right for you.

Key Takeaways

Mortgage Renewals: Occur at the end of your mortgage term. You sign an updated contract with a new rate and term based on current market conditions.
Mortgage Refinances: This happens when you break your existing mortgage to make significant changes. This involves signing a completely new contract with updated rates and terms.
Choosing Between Them: Your decision will depend on factors like your current mortgage term, the equity you’ve built, the economic climate, and your financial goals.

When it comes to managing your mortgage, you may find yourself comparing renewal vs refinance mortgage options. Knowing the difference between mortgage renewal and refinance is key to making the best financial decision. Here’s a closer look at renewing vs refinancing mortgage options to help you decide whether to renew or refinance your mortgage.

Mortgage Renewal

A mortgage renewal happens at the end of your mortgage term, allowing you to extend your existing mortgage into a new term. This keeps your current amortization schedule intact while allowing you and your lender to negotiate new terms, such as a different interest rate or term length. Essentially, a renewal lets you continue paying off your loan until the end of its amortization.

If you’re wondering “what is the difference between renewing and refinancing a mortgage?”, a renewal simply continues your mortgage with your current lender, often with updated terms.

Mortgage Refinance

A mortgage refinance involves breaking your current mortgage contract to sign a new one. This is typically done to make major changes, such as extending the amortization period, adding or removing someone from the home title, or increasing the mortgage amount. Refinancing can help you take advantage of a lower interest rate before your term ends or unlock your home equity for purposes like renovations, debt consolidation, or investments.

If you’re debating refinance vs renewal mortgage, refinancing offers greater flexibility to tailor your mortgage to current financial goals.

Refinance vs Renewal: Which Option Is Right for You?

Understanding the difference between refinancing and renewing a mortgage will help you make the best choice. While a renewal vs refinance mortgage comparison reveals that a renewal is a continuation of your existing loan with updated terms, refinancing offers more opportunities for restructuring your mortgage.

Ultimately, the choice to refinance or renew a mortgage depends on your needs. Whether you’re comparing refinancing vs renewing mortgage options or deciding between a renew vs refinance mortgage, knowing your financial goals will guide your decision.

What Happens When Your Mortgage Term Expires

In Canada, mortgage terms are shorter than the full amortization period. While amortizations typically last 25 or 30 years, terms usually range from 6 months to 10 years. As a result, most homeowners will go through multiple term expirations during the life of their mortgage.

When your term ends, your lender will provide a renewal offer. This document will outline the remaining balance of your loan and include interest rate options for new terms.

At this stage, you have several options:

Pay Off the Mortgage: If you have the funds, you can pay off the remaining balance in full.
Renew with Your Current Lender: Agree to the terms offered and continue with your current lender.
Switch to a New Lender: Shop around for better rates or terms and move your mortgage to a different lender.
Refinance: Make significant changes to your mortgage, such as accessing home equity, extending your amortization, or securing a lower interest rate.

Your choice will depend on your financial situation, goals, and the available options in the market.

Should You Renew or Refinance Your Mortgage: A Comparison

Choosing between renewing vs refinancing your mortgage depends on several factors, including where you are in your current term, financial situation, long-term plans, and current market conditions.

Here’s a side-by-side comparison to help you decide:

Aspect	Renewal	Refinance
When?	1. At the end of your mortgage term. 2. Early renewal possible with the current lender (e.g., converting variable to fixed without penalty).	Any time during the mortgage term.
What?	Extends your existing mortgage contract with renegotiated terms.	Breaks your current mortgage contract to create a new one.
Why?	To continue paying off your loan under updated terms.	Access home equity, extend amortization, secure a lower interest rate, or consolidate debts.
How?	Renegotiate interest rate, term, and type of mortgage.	Refinance with your current lender or shop for a new lender.
Pros	1. No fees if renewing with your current lender. 2. Ability to switch lenders for better terms.	1. Access home equity for renovations, investments, or debt consolidation. 2. Lower payments through extended amortization or lower interest rates.
Cons	1. Potential fees if switching lenders. 2. Limited to renegotiating aspects of the current contacts.	Penalties for breaking the existing mortgage contract before term ends.

Key Considerations:

Renewal is straightforward and typically free if you stay with your current lender, but options for changes are limited.
Refinancing offers more flexibility to adjust your mortgage to suit your needs but often comes with penalties or fees.

Your choice should align with your financial goals, whether that’s minimizing costs, accessing equity, or securing better terms.

When to Renew Your Mortgage

Renewing your mortgage is a good choice if you’ve reached the end of your mortgage term and are satisfied with your current setup without needing major changes. Renewal allows you to continue paying off your loan under updated terms.

You can choose to:

Stay with your current lender: This is often the easiest option and may not involve any fees.
Switch to a new lender: If another lender offers better rates or terms, you can move your mortgage, though this might involve some fees or additional steps.

Renewal is ideal if you’re comfortable with your financial situation, don’t need to access home equity, and want to avoid the costs associated with refinancing.

Staying with Your Lender vs. Finding a New Lender

When it’s time to renew your mortgage, you’ll need to decide whether to stay with your current lender or switch to a new one. Each option comes with its own benefits and considerations:

Staying with Your Current Lender

Advantages:
Simplifies the process—just sign and return the renewal offer.
No need for additional paperwork or qualifying criteria.
Can negotiate for better rates or terms, especially if other lenders offer more competitive options.
Best for:
Homeowners satisfied with their current lender and rates.
Those who prefer convenience or wish to avoid the costs associated with switching.

Switching to a New Lender

Advantages:
Opportunity to secure a lower interest rate or better terms and features.
Aligns your mortgage with your current financial goals and market conditions.
Considerations:
Requires going through the application process again, including:
Meeting qualifying criteria (e.g., credit check, income verification).
Submitting documents such as T4s, pay stubs, and possibly your Notice of Assessment (NOA).
May involve additional costs, including:
Appraisal fees to determine the home’s current value.
Notary fees to transfer the mortgage.
Best for:
Homeowners who want the best available rates or features.
Those willing to go through the application process to potentially save money in the long run.

Key Tip: Even if you’re happy with your current lender, it’s worth shopping around to see if better options are available. Use competing offers as leverage to negotiate a better deal with your current lender.

Getting a Better Mortgage Rate on Your Renewal by Switching

Renewing your mortgage is a great opportunity to save money by securing a better deal. Taking the time to explore your options and shop around could potentially save you thousands in interest costs over the life of your loan.

Why Consider Switching Lenders?

Lower Interest Rates: Other lenders may offer more competitive rates than your current one.
Customized Terms and Features: Switching could provide terms better suited to your financial needs.
Long-Term Savings: Even a slightly lower rate can significantly reduce your overall interest costs.

Tips for Securing a Better Rate

Compare Offers: Review rates and terms from multiple lenders to find the best deal.
Negotiate: Don’t settle for the first rate offered. Use competing offers as leverage to negotiate a better rate with your current lender.
Research the Market: Understand current mortgage trends to ensure you’re getting a competitive rate.
Work with a Transparent Lender: Some lenders, like Mission 35 Mortgages Burloak , offer clear and upfront rates, simplifying the process.

Switching lenders during renewal may involve some paperwork and costs, but the potential savings often outweigh the effort. By staying informed and negotiating effectively, you can secure a mortgage that aligns with your financial goals.

When to Refinance Your Mortgage

Refinancing can be a great option if you’re in the middle of your mortgage term or need to make significant changes to your mortgage. It allows you to adjust your loan to fit your current needs and goals. Here are some common reasons to refinance:

1. Access Equity in Your Home

Refinancing lets you tap into the equity you’ve built in your property. Equity can grow in two ways:

Paying Down Your Mortgage: As you make payments, your principal balance decreases.
Property Value Increase: Your home’s market value rises over time.

With refinancing, you can borrow up to 80% of your home’s value. This allows you to access funds for any purpose, such as home renovations, education, investments, or other financial needs.

2. Lower Your Mortgage Payments

Refinancing creates a new mortgage, giving you the chance to:

Secure a Lower Interest Rate: Reduce your monthly payments by taking advantage of better rates.
Extend Your Amortization: Spread payments over a longer period to lower your monthly costs.

Both options can make your mortgage more manageable, especially during times of financial stress.

3. Consolidate Your Debt

If you carry high-interest debts (e.g., credit cards, loans, or lines of credit), refinancing can help consolidate them into a single, lower-interest payment. Benefits include:

Lower monthly payments.
Faster debt repayment.
Significant savings on interest costs.

By using your home equity, you can streamline your finances and reduce financial pressure.

4. Save Money on Interest-Carrying Costs

If current mortgage rates are significantly lower than your original rate, refinancing can save you money. However, it’s crucial to compare the costs of breaking your mortgage (e.g., penalties or fees) against the potential interest savings to ensure it’s worth the change.

When to Consider Refinancing

Refinancing is a good option if:

You need access to cash for major expenses.
You want to reduce your monthly mortgage payments.
You’re carrying high-interest debts and want to consolidate.
Interest rates have dropped significantly since you secured your current mortgage.

By carefully evaluating your financial situation and the costs involved, you can determine if refinancing is the right move for you.

What Rate Type Should You Choose If Rates Increase or Decrease?

Choosing between a fixed-rate or variable-rate mortgage depends on market trends, your financial situation, and your comfort level with risk. Here’s a guide to help you decide:

If Rates Are Expected to Rise

Choose a Fixed-Rate Mortgage:
Provides stability and predictable payments over the term.
Ideal if you prefer certainty or have limited flexibility in your budget.
Protects you from potential increases in interest rates.

If Rates Are Expected to Decrease

Choose a Variable-Rate Mortgage (VRM):
Allows you to benefit from falling interest rates.
You could save money as your interest rate decreases.
Requires a higher risk tolerance, as rates could fluctuate.
Consider an Adjustable-Rate Mortgage (ARM):
Similar to a VRM but with the added advantage of payment adjustments.
Reduces your monthly mortgage payments with each rate cut.
Offers more immediate cash flow savings compared to a traditional VRM.

Key Considerations

Risk Tolerance: If you’re risk-averse or on a tight budget, a fixed rate provides peace of mind. If you can handle potential rate changes, a variable or adjustable rate might save you money.
Financial Stability: Fixed rates are safer for those with less financial flexibility, while variable or adjustable rates suit those with stable incomes or savings to manage fluctuations.
Market Outlook: Stay informed about interest rate trends and economic forecasts to make a more informed choice.

Final Words

The right mortgage rate type depends on your individual financial situation, your tolerance for risk, and the state of the market. Fixed rates offer stability and predictability, making them ideal in times of rising rates or for those seeking peace of mind. Variable or adjustable rates, on the other hand, can save you money in a declining rate environment but require financial flexibility and a willingness to handle rate changes.

By carefully evaluating your finances, goals, and market conditions, you can select the mortgage rate that best supports your long-term financial success.

Frequently Asked Questions

What is a mortgage renewal?

A mortgage renewal happens when your mortgage term ends. It allows you to renegotiate the interest rate, term length, and other conditions with your current lender or a new one to continue paying off your loan.

What is a mortgage refinance?

Refinancing is when you break your current mortgage contract and replace it with a new one. This lets you make significant changes, like accessing home equity, extending your amortization, or lowering your interest rate.

When is the best time to refinance a mortgage?

Refinancing is ideal when interest rates drop significantly, you need to access home equity, consolidate high-interest debt, or reduce monthly payments by extending your amortization.

Can I renew my mortgage with a different lender?

Yes, you can switch lenders at renewal. This may involve meeting the new lender’s qualifications and covering costs like appraisal or legal fees, but it can secure better rates or terms.

What fees are involved in switching lenders?

Switching lenders may involve legal fees, appraisal costs, discharge fees, and, in the case of refinancing, penalties for breaking your existing mortgage before the term ends.

How can I access home equity through refinancing?

Refinancing allows you to borrow up to 80% of your home’s value, minus the remaining mortgage balance. This equity can be used for renovations, investments, debt consolidation, or other needs.

What is the difference between a fixed-rate and variable-rate mortgage?

Fixed-rate mortgages offer stable, predictable payments and protect against rate increases, while variable-rate mortgages can save money if rates drop but come with the risk of rate increases.