Mortgage Renewal Strategy

Your mortgage term — typically five years in Canada — will eventually come to an end, and you will need to renew. This is one of the most important financial decisions you will make as a homeowner, and it is one that banks are counting on you to handle passively.

Most Canadians sign their renewal letter without shopping around, leaving thousands of dollars on the table. This page explains why you should never auto-renew, how to shop for the best rate, when switching lenders makes sense, and how to evaluate whether breaking your mortgage early is worth the penalty.

Do Not Just Auto-Renew

About four to six months before your mortgage term ends, your current lender will send you a renewal offer. It is typically a simple one-page form with a new interest rate and term options. All you have to do is sign and return it, and your mortgage rolls into a new term.

Do not sign it without shopping around first.

Here is why:

• The renewal rate is rarely their best rate. Lenders know that most borrowers take the path of least resistance. The rate on your renewal offer is usually higher than what they would offer a new customer — or what they would offer you if you pushed back. It is a starting point for negotiation, not a final offer.

• The savings can be substantial. Even a 0.25% rate reduction on a $400,000 mortgage saves approximately $1,000 per year in interest — or $5,000 over a five-year term. A 0.50% reduction doubles that to $10,000. That is money you keep in your pocket simply by making a few phone calls.

• Your financial situation may have changed. Since you first got your mortgage, your income may have increased, your credit score may have improved, or your home’s value may have risen. All of these factors can qualify you for a better rate than what your lender is offering.

• Market conditions may have changed. Interest rates fluctuate over the course of a mortgage term. The rate environment at renewal may be very different from when you first signed — and different lenders may be more competitive at different times.

Tip

Start shopping for renewal rates 120 days (4 months) before your mortgage term ends. Most lenders will hold a rate for 120 days, which means you can lock in a favourable rate early and still benefit if rates drop further before your renewal date. If rates go down, you can re-lock at the lower rate. If rates go up, you are protected. This is a no-lose strategy.

How to Shop for Renewal

Here is a step-by-step approach to getting the best renewal rate:

Step 1: Know Your Current Terms

Before you start shopping, understand your current mortgage details:

• Current interest rate
• Remaining mortgage balance
• Maturity date (when your term ends)
• Any prepayment privileges you have been using
• Whether your mortgage is insured (CMHC) or conventional

Step 2: Contact a Mortgage Broker

A mortgage broker shops multiple lenders on your behalf — often 30 or more — and can quickly identify the most competitive rates available. If you are unfamiliar with the different types of lenders, our guide on choosing a mortgage provider covers banks, credit unions, and monoline lenders in detail. Their services are typically free to you; they are paid by the lender. Even if you ultimately stay with your current lender, a broker gives you leverage to negotiate.

Step 3: Get Quotes from at Least Three Lenders

In addition to your broker’s recommendations, consider getting quotes directly from:

• Your current lender (to see if they will match or beat competitors)
• A major bank you do not currently use
• A credit union or monoline lender (these often have the most competitive rates)

Step 4: Negotiate with Your Current Lender

Armed with competing offers, call your current lender’s retention department and ask them to match or beat the best rate you have found. Many lenders will reduce their renewal offer to keep your business — sometimes by 0.25% to 0.50% or more. This costs you nothing and takes 15 minutes.

Step 5: Evaluate the Full Package

Rate is important, but also consider:

• Prepayment privileges — Can you make lump sum payments? What percentage per year? Can you increase your regular payments?
• Portability — Can you transfer the mortgage to a new property if you move?
• Penalty structure — How does the lender calculate prepayment penalties? (More on this below.)
• Flexibility — Can you change your payment frequency? Can you skip a payment in a hardship?

Switching Lenders at Renewal

If another lender offers a significantly better rate and your current lender will not match it, you can switch. Here is what the process involves:

The Application Process

Switching lenders at renewal is similar to applying for a new mortgage. You will need to provide:

• Proof of income (pay stubs, T4s, or notice of assessment)
• Current mortgage statement
• Property tax bill
• Home insurance certificate
• Government-issued ID

The new lender will assess your creditworthiness and the property’s value, just as they would for a new purchase.

Appraisal

The new lender may require an appraisal to confirm the property’s current market value. Some lenders cover this cost; others charge you $300 to $500. Ask upfront.

Legal Fees

Switching lenders involves legal work — discharging the old mortgage and registering the new one. Some lenders cover the legal costs of switching as an incentive (this is called a “switch offer” or “transfer offer”). Others charge $500 to $1,000 in legal and discharge fees. Factor this into your savings calculation.

Timing

The switch must happen on or before your renewal date to avoid prepayment penalties. If you switch even one day after your new term begins (i.e., after you have renewed), you would be breaking the new mortgage and facing a penalty.

Start the process at least 60 to 90 days before your renewal date to allow time for the application, appraisal, and legal work.

Caution

If your mortgage is insured (CMHC, Sagen, or Canada Guaranty — typical for down payments under 20%), you may have an advantage when switching. Insured mortgages are less risky for lenders, which often translates to lower rates. However, confirm that the new lender will accept the existing insurance rather than requiring a new appraisal.

When Switching Makes Sense

Switching is worth the effort when:

• The rate difference saves you significantly more than the switching costs
• Your current lender refuses to negotiate or match competing offers
• You want different mortgage features (better prepayment privileges, different term length, portability)
• You have had poor service from your current lender

Switching may not be worth it when:

• The rate difference is very small (less than 0.10%) and switching costs eat into the savings
• You need a product that only your current lender offers (e.g., a specific line of credit bundle)
• The hassle of a new application is not justified by modest savings

When to Break Your Mortgage Early

Sometimes it makes financial sense to break your mortgage before the term ends — for example, if interest rates drop dramatically mid-term, if you need to sell your home, or if you want to access equity through refinancing. But breaking a mortgage comes with penalties.

Variable-Rate Mortgage Penalties

If you have a variable-rate mortgage (see fixed vs. variable rates for a refresher on the differences), the prepayment penalty is typically 3 months’ interest. This is relatively straightforward and affordable.

Example: On a $400,000 mortgage at 5%, three months’ interest is approximately: $400,000 x 5% / 12 x 3 = $5,000

Fixed-Rate Mortgage Penalties

If you have a fixed-rate mortgage, the penalty is the greater of:

• 3 months’ interest, or
• The Interest Rate Differential (IRD)

The IRD is designed to compensate the lender for the interest they will lose because you are breaking the contract. It compares your contracted rate to the lender’s current rate for a term matching your remaining term, and charges you the difference for the time remaining.

Example: You have a $400,000 mortgage at 5.5% with 3 years remaining. The lender’s current 3-year rate is 4.0%. The differential is 1.5%. Your IRD penalty would be approximately: $400,000 x 1.5% x 3 years = $18,000

Compare that to the 3 months’ interest penalty of approximately $5,500. The lender charges the higher amount: $18,000.

Caution

IRD penalties on fixed-rate mortgages can be enormous — sometimes $15,000 to $30,000 or more. Before breaking a fixed-rate mortgage, always get the exact penalty amount in writing from your lender. Then calculate whether the savings from the lower rate (or whatever reason you are breaking) exceed the penalty over the remaining period. A mortgage broker can help you run these numbers.

Is Breaking Worth It?

To determine if breaking your mortgage early makes financial sense, compare the total penalty cost to the total savings over the remaining period. Here is a simplified framework:

1. Get the exact penalty amount from your lender (in writing)
2. Calculate the interest savings from the new, lower rate over the remaining time
3. Subtract any fees (legal costs, appraisal, new registration)
4. If the net savings are positive and significant, breaking may make sense
5. If the net savings are marginal or negative, wait until renewal

Key Renewal Timeline

When	What to Do
6 months before renewal	Start researching current mortgage rates
120 days (4 months) before	Contact a mortgage broker; lock in the best available rate
90 days before	Get competing quotes; negotiate with your current lender
60 days before	Decide whether to stay or switch; begin application with new lender if switching
30 days before	Finalize all paperwork; sign documents
Renewal date	New term begins; confirm new rate and payment amount

Your mortgage renewal is not a formality — it is a financial opportunity that directly affects how quickly you build home equity. Treat it like the significant decision it is, and you could save thousands of dollars over the next term. Use our mortgage calculator to run renewal scenarios and see how different rates affect your payments.

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