What Happens When Your Mortgage Renews in Canada: A Complete Guide

What Is Mortgage Renewal in Canada?

In Canada, most mortgages have a term of 1 to 5 years, after which the outstanding balance is due. Renewal is the process of agreeing to new terms (a new interest rate and a new term length) for the remaining balance.

At renewal you have three options:

1. Renew with your current lender: sign their renewal offer at whatever rate they propose
2. Negotiate with your current lender: counter-offer with competing quotes
3. Switch to a new lender: transfer the mortgage to a lender offering better terms

The biggest financial mistake most Canadians make is option 1: accepting the renewal offer without shopping. Lenders send renewal offers knowing most clients will sign automatically. The first offer is rarely the best available rate.

The Renewal Timeline: When to Start

Most Canadian lenders send a renewal offer 30-90 days before your maturity date. Some send it as early as 120-150 days before.

When to start shopping:

• 120 days before your maturity date is the ideal start time. This gives you time to get competing quotes, rate locks, and complete a transfer if switching.
• Most lenders will honour a rate hold for 90-120 days, so a rate quoted at 120 days out is still valid when your mortgage actually renews.
• 90 days before: last comfortable start point if you plan to switch lenders (the transfer process involves your lawyer and can take 3-4 weeks)
• 30 days before: minimum. Less time means less leverage and possibly more rushed paperwork if switching.

Set a calendar reminder 4-6 months before your maturity date.

The Renewal Stress Test: What Changed

One of the most important things to know about mortgage renewal in Canada:

If you renew with the same lender, there is NO stress test required. The lender does not re-qualify you. They simply issue a renewal offer for the remaining balance at a new rate. This matters enormously for borrowers whose financial situation has changed since the original mortgage.

If you switch to a new lender at renewal:

• The new lender is required to apply the stress test (as if it were a new mortgage)
• You must qualify at max(new rate + 2%, 5.25%)
• If your income or debt situation has changed, you may not qualify for the same amount at the new lender

Practical implication:

• If you easily pass the stress test: switching lenders to get a better rate is low-risk
• If you would fail the stress test at a new lender (changed job, added debt, reduced income): stay with your current lender and negotiate the rate as hard as possible. The no-re-qualification rule at your current lender is worth something.

How to Negotiate Your Renewal Rate

Your mortgage renewal is the most leverage you will ever have with your lender. They want to keep the mortgage; losing it means they get nothing.

Step-by-step negotiation:

1. Do not sign the renewal offer you receive. Just receiving it does not obligate you to anything.

2. Get competing quotes from a mortgage broker. Contact a broker 90-120 days before maturity and ask for the best available rates. This takes 15 minutes and is free.

3. Bring the competing quote to your current lender. Call or visit your bank and say: "I have a competing offer at [X%]. Can you match or beat it?"

4. Most lenders will match a competitive rate rather than lose the mortgage. Their cost to keep you is the discount. Their cost to lose you is the full loan amount.

5. Get the matched rate in writing before agreeing to renew.

Typical outcomes:

• Lenders typically discount their first renewal offer by 0.10%-0.30% when presented with a competing quote
• In some cases, the competing lender's rate is better even after your current lender matches. In that case, it is worth switching

Switching Lenders at Renewal: Costs and Process

Switching lenders at renewal (sometimes called a "transfer" or "switch") has no prepayment penalty because your mortgage is at the end of its term. However, there are some costs and logistics to understand:

Costs of switching lenders:

• Discharge fee from your current lender: typically $200-$350 (some lenders wave this if you are leaving; it varies)
• Title insurance for new lender: typically $150-$300 (sometimes the new lender covers this as an incentive)
• Legal fees if your property has a collateral charge: $500-$1,500+ (a collateral charge requires a lawyer to discharge the old mortgage and register the new one)
• No legal fees for a conventional charge transfer: the new lender handles the registration electronically through the title insurance company

Collateral charge vs conventional charge matters most here:

• If your current mortgage is a conventional charge (registered at the mortgage amount), switching is easy and cheap
• If your current mortgage is a collateral charge (registered at a higher amount, common at TD and some monolines), you need a lawyer to complete the switch, costing $500-$1,500+

Ask your broker: "What type of charge does my current lender register?" before assuming a switch is straightforward.

Short-Term vs Long-Term at Renewal

At renewal, you are not locked into another 5-year fixed term. You can choose:

• Fixed rate, various terms: 1-year, 2-year, 3-year, 4-year, 5-year
• Variable rate: follows Bank of Canada overnight rate
• Open mortgage: higher rate but no prepayment penalty

When choosing a term at renewal, consider:

1. Rate expectations: If you believe rates will fall, a shorter term (1-2 years) or variable rate lets you capture lower rates sooner without waiting 5 years.

2. Your plans: If you are likely to sell or significantly renovate in the next 2-3 years, a shorter term avoids a large prepayment penalty when you break the mortgage early.

3. Cash flow certainty: A longer fixed term gives budget certainty. If you are stretched on affordability, knowing your exact payment for 5 years has real value.

4. Penalty calculation method: Short-term fixed rates often have simpler penalty calculations (3-month interest) vs long-term fixed (IRD). If you might need to break early, factor this in.

Common Renewal Mistakes to Avoid

1. Auto-signing the renewal offer without shopping: leaves 0.10%-0.30% of rate savings on the table. At $500K, that's $5,000-$15,000 over a 5-year term.

2. Waiting until the last minute: starting 2-3 weeks before maturity is too late to execute a lender switch if needed.

3. Not considering a collateral charge switch: if you have a collateral charge and a lawyer cost of $1,000, make sure the rate savings over the new term exceed that cost before switching.

4. Focusing only on the rate: compare the full mortgage terms: prepayment privileges, penalty calculation, portability. A 0.05% lower rate with an expensive penalty calculation can be worse over the term.

5. Assuming your credit and income are still strong: if your financial situation has changed significantly, confirm before committing to switch lenders (the new lender will stress test you; your current lender will not).