What happens if I don’t renew my mortgage?

<p data-pm-slice="1 1 []">Your existing mortgage might be automatically renewed by your lender if you don’t do anything. This can save you time and any mortgage prepayment penalties. But it can also mean leaving money on the table, if you accepted the renewal rate you were given and didn’t shop around to see if you could get a lower one. If you’re renewing with the same lender, you don’t have to qualify for a mortgage again. However, the interest rate and the payment amounts might be higher than what other financial institutions offer.</p>

Mortgage Renewal Process: How Does it Work in Canada?

Published: June 23, 2023
Last updated: September 5, 2024

Written by
Craig Sebastiano

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Drawing of a man with a suitcase looking at a house coming out of a hole in the ground with a percentage sign on it

If you renewed your mortgage or purchased a home three or four years ago and had a five-year term, you’ll soon have to go through the mortgage renewal process. However, you’re probably not going to like the rate you see when it comes time to renew.

Interest rates have risen significantly since March 2022, when the overnight interest rate was 0.25%. Today, it sits at 4.75%. This has pushed many Canadian homeowners to their breaking point.

Don’t fret if you’re not sure what a mortgage renewal is. We’ll walk you through the process, providing you with tips and the steps required to renew your mortgage.

What is a mortgage renewal in Canada?

This is the renewal of your mortgage contract for a specific period of time. Before your mortgage comes up for renewal, your current lender will typically send you a renewal statement with details about the new rate, the term, and payment information. A federally regulated financial institution (such as a bank) is required to send you this at least 21 days before the end of the term, but it may send this to you sooner.

When you get a mortgage, there are two important terms to remember: the mortgage term and the amortization period.

The mortgage term is the length of the mortgage contract. It’s usually between one and five years, although it can be shorter or longer. The standard term is five years. At the end of the term, the mortgage comes up for renewal.

The amortization period is the amount of time it takes to completely pay off the mortgage. Most Canadian mortgage borrowers will have a mortgage with a 25-year amortization period, though longer amortizations have become more common as interest rates have been rising.

Mortgage renewal tips

Start thinking about your renewal as soon as possible. Don’t let your renewal sneak up on you. Give yourself the time to review your financial goals, whether you want to increase your payments, or allow you to consider moving.

Look at your current situation. Since getting your mortgage, you may have had children and need more space, you may want to downsize, or your company is considering transferring you to another part of the country.

Consider renewing sooner rather than later. When the Bank of Canada raises or lowers interest rates, mortgage rates typically follow. Getting a mortgage renewal quickly can remove any uncertainty about changing rates. Recently, some variable-rate mortgage holders have faced rising payments already due to an increase in rates while those with fixed rates have seen higher payments at renewal.

Ask your lender for a better rate. Your lender likely isn’t going to give you the best rate because there’s a chance you might accept its first offer. Shop around or get a mortgage broker to help. Provide your lender with the details and ask if it can match or beat the best offer.

See if you can save by switching lenders. It may be time to look at a different lender if your existing lender won’t give you a better rate. However, keep in mind that you will need to go through the mortgage pre-approval process all over again, which includes having to pass the mortgage stress test. This is more difficult to pass now that rates have increased significantly and federally regulated institutions must qualify you at a rate that’s 200 basis points higher than your mortgage rate.

Steps for renewing your mortgage

Get details about the new interest rate and monthly mortgage payments from your current lender months ahead of the renewal date.
Compare rates with other lenders or get a mortgage broker to do the work for you.
Negotiate with your existing lender.
Sign the new mortgage contract with your current lender, or the new lender.

Requirements for a mortgage renewal in Canada

In many cases, there aren’t any requirements for a mortgage renewal with your current lender unless your credit score has tumbled significantly, you’ve missed mortgage payments, or you haven’t paid your property taxes.

There aren’t any fees to renew with your current lender. However, you might have to pay a fee to renew your mortgage if you have an alternative lender.

What if I want a better mortgage rate?

Ask your lender. If it refuses to budge, you can work with one of the best mortgage brokers to see if they get you a better rate. However, there may be prepayment penalties if you decide to move your mortgage to another lender before your term ends. You will also need to requalify for a mortgage.

How soon can you renew your mortgage before it expires?

You may be wondering how soon can you renew your mortgage before it expires. Typically, you can get a mortgage renewal up to six months before the expiry date without being charged any prepayment penalties.

Do mortgages automatically renew?

Yes, if you don’t respond to your lender, they may take that as acceptance of the renewal terms and automatically start your new contract. However, your lender may not renew your mortgage automatically if you’ve missed payments or your credit score has dropped considerably.

Current mortgage renewal rates in Canada

The current mortgage renewal rates vary depending upon the term length and whether it’s a variable- or fixed-rate mortgage.

Currently, the Big Five banks are advertising rates of between 5.39% and 6.44% on five-year fixed mortgages, and between 6.6% and 7.4% on five-year variable mortgages.

As of this writing, variable mortgages have a higher interest rate than fixed mortgages. When interest rates were lower in mid-2022, the opposite was true.

Should I switch mortgage lenders at renewal?

The answer to this question depends on what your current lender is offering and whether you want to switch lenders.

You don’t need to qualify for a mortgage again when you stay with your existing lender. However, you will need to go through the mortgage approval process again if you switch lenders. It’s wise to at least compare mortgage rates at renewal so you can be sure you’re still getting the lowest interest rate available. If you can find a lower rate for similar terms, it probably makes sense to switch.

Switching to an online mortgage finance company like Nesto can provide homeowners with excellent mortgage rates that they might not encounter by sticking with a traditional bank. Shopping around for different mortgage rates from various companies can give homeowners the best chance of finding the lowest possible interest rate.

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Craig Sebastiano

Craig has more than 15 years of personal finance writing experience and is based in Toronto, Ont. He was previously the managing editor at Ratehub.ca, and worked as a writer and editor at BNN Bloomberg and Benefits Canada.

Frequently asked questions

What happens after a 5-year mortgage?

How do I know when my mortgage is due for renewal?

What happens if I don’t renew my mortgage?

What happens after a 5-year mortgage?

If you have a five-year mortgage, your mortgage lender will ask you to renew your mortgage after five years. It will usually provide you with the new interest rate and monthly mortgage payments. Your payment frequency will usually stay the same if it's monthly, weekly, or biweekly. You'll have option to renew for another five years, or you can choose a shorter term if you think rates will be lower in the future and want to get a better rate sooner.

How do I know when my mortgage is due for renewal?

The mortgage contract with your current lender should state when it comes up for renewal. If you're unable to find it, you can contact your mortgage lender to get the information. Federally regulated financial institutions (such as banks) are required to provide you with a renewal statement at least 21 days before the end of your term.

What happens if I don't renew my mortgage?

Your existing mortgage might be automatically renewed by your lender if you don't do anything. This can save you time and any mortgage prepayment penalties. But it can also mean leaving money on the table, if you accepted the renewal rate you were given and didn't shop around to see if you could get a lower one. If you're renewing with the same lender, you don't have to qualify for a mortgage again. However, the interest rate and the payment amounts might be higher than what other financial institutions offer.