🤔❓What is a Mortgage Renewal?💰🏘️

 

A mortgage renewal is done at the end of your mortgage term when you haven't fully paid off your mortgage. Your mortgage contract will be renewed with possible term and interest rate changes. When your mortgage is up for renewal, you might want to consider taking advantage of any features that your mortgage lender offers, such as mortgage prepayment allowances. You might also negotiate your mortgage renewal rate or shop around with other lenders for a better rate.

Early Mortgage Renewals

Everyone seems to be concerned about getting the best rates when they purchase their homes but what about when it comes time for your renewal? Your lender will send you a renewal notice at least 21 days before your term is up where they will make a renewal offer. You could just sign...but wait a minute!! If it seems all too convenient to sign your early renewal offer and send it back, that's because it is - and that convivence comes at a price. By accepting your early renewal offer, you are going to end up paying a higher interest rate than what you could have gotten if you shopped around and switched to another lender. If you want to get the best mortgage rate at renewal time, sometimes your best option is to switch providers. Once you're within 120 days of your renewal date, we can start shopping around for you and secure that rate for your renewal date. In the event rates drop we will be able to take advantage of the lower rate. In the event rates go up you are protected with the interest rate committed to you. 

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How Does Renewing Your Mortgage Work?

As your mortgage term comes to an end (with the most common term being five years), you will receive a renewal statement from your mortgage lender. Your lender must send you this statement at least 21 days before your mortgage term ends.

This renewal statement will have information on your mortgage, such as your mortgage balance, term length, and interest rate. This is the interest rate that they are offering you for your next term. Depending on your lender, this offered interest rate cannot increase within 30 days of your maturity date. This means that if rates rise, the mortgage rate offered to you will still stay the same. If rates decrease, your mortgage lender may provide you with a lower rate on the date of renewal.

This rate may be their lowest posted rate, which might not always be the lowest mortgage rate that they may offer. You can negotiate to get a discounted rate at your current lender to possibly get a lower mortgage renewal rate. Your renewal statement may also include other mortgage options, such as different term lengths or offers.

If you choose not to negotiate and agree to the rate and term in your renewal statement, all you will need to do is sign the mortgage renewal contract. Depending on your lender, you may receive your contract in the mail to sign and return, or you may have the option to sign it online.

Percentage of Renewals Switching to a Different Company (Q2 2021):

13.8%

Will my mortgage automatically renew?

Your renewal statement will state if your mortgage will be automatically renewed. Some lenders might have automatic renewals, which means that your mortgage will automatically renew if you do not take any action. Automatic renewals indicate that you accept the terms and rates that your lender offers, which might not always be the most favorable.

Can you be denied a mortgage renewal?

You can be denied a mortgage renewal, as mortgage renewals are not guaranteed. Roughly 3% of mortgage renewals are denied. The approval rate is even lower for same lender refinancing, with 18.6% being denied a mortgage refinance.

If your financial situation has deteriorated, such as if you have missed mortgage payments on your previous mortgage, lost your job, or now have a significantly lower credit score, your mortgage lender might choose not to renew your mortgage.

Mortgage Approval Rates (Q1 2020)

	Home Purchase	Same Lender Mortgage Refinance	Same Lender Mortgage Renewal
Approval Rate	61.3%	81.4%	96.7%
Denied	38.7%	18.6%	3.3%

Source: CMHC

If you’ve been denied a mortgage renewal, there are a few options that you can take. You could meet with your current lender to see if accommodation could be made, try to find a cosigner, or switch to another lender. You may have to consider a B-Lender or a private mortgage lender, which often have higher rates and fees.

How Early Can You Renew Your Mortgage?

All of Canada’s major banks, including RBC, TD, Scotiabank, CIBC, and BMO, have an early mortgage renewal option that allows you to renew 120 days (four months) before your term ends without any penalties. CIBC allows you to renew 150 days early (five months), while Scotiabank lets you renew 180 days early (six months).

There is no early mortgage renewal penalty if you renew within this period. Switching lenders or renewing before your mortgage lender’s renewal period may cause you to have to pay mortgage prepayment penalties.

List of Early Mortgage Renewals at Canada’s Major Banks and Lenders

Bank		Early Renewal Period
	RBC	Four Months (120 Days)
	TD	Four Months (120 Days)
	BMO	Four Months (120 Days)
	CIBC	Five Months (150 Days)
	Scotiabank	Six Months (180 Days)
	National Bank	Six Months (180 Days)
	Motusbank	Three Months (90 Days)
	ATB Financial	Three Months (90 Days)
	Vancity	Three Months (90 Days)
	Desjardins	Four Months (120 Days)
	B2B Bank	Four Months (120 Days)
	Cambrian Credit Union	Four Months (120 Days)
	Simplii Financial	Five Months (150 Days)
	Meridian Credit Union	Six Months (180 Days)
	ICICI Bank	Six Months (180 Days)
	Canadian Western Bank	Six Months (180 Days)
	Coast Capital Credit Union	7 Months (210 Days)

How Do Early Mortgage Renewals Work?

Early mortgage renewals allow you to renew your mortgage well before your scheduled renewal date. This allows you to lock in a mortgage rate today, which can be helpful if you think rates will increase before your renewal date. The list of early mortgage renewal periods by major banks and lenders show some common early mortgage renewal periods.

However, your mortgage contract may specify a different length. You can renew your mortgage without any mortgage prepayment penalties during the early mortgage renewal period. If you renew before this period, you are considered to be breaking your mortgage, which will come with mortgage penalties.

When you renew your mortgage early, you will agree to a new mortgage rate that will apply for your next term. This new mortgage rate can apply in one of two ways, which will vary based on your lender. Some lenders will immediately apply your new mortgage rate to your mortgage. For example, if your renewal date is December but you renewed four months early in August, then your new mortgage rate will be used starting in September.

Other lenders will continue using your old mortgage rate until the new mortgage rate is effective when your mortgage is scheduled to be renewed in December. You can ask to have your mortgage renewal contract to be effective starting the first month after the contract was signed.

For example, Canadian Western Bank allows you to sign your mortgage renewal documents six months early, but the renewal itself will only take effect on the mortgage renewal date. Meanwhile, with National Bank, your new mortgage rate will be effective on the first payment after your mortgage renewal contract was signed.

Will an early mortgage renewal save me money?

There are two scenarios where an early mortgage renewal will save you money. The first is when mortgage rates are lower than your current mortgage rate. For example, let’s look at a 5-year $500,000 mortgage that is six months away from renewal that has a fixed mortgage rate of 3%.

Scotiabank allows you to renew your mortgage early by 180 days (six months), and currently offers a 5-year fixed mortgage rate of 2.50%. This is 0.50% lower than your mortgage rate. Since you can renew early without penalties, it can make sense to renew at the lower mortgage rate of 2.50% to take advantage of lower interest payments immediately.

• If you were to not renew early and stayed at 3%, your interest payments over the next six months will be $5,300
• If you renew early at 2.5%, your interest payments over the next six months will be around $4,500

In this case, renewing early to take advantage of a 0.50% lower mortgage rate for six months will save you $800.

The second scenario where you will save money is if mortgage rates increase in the future. Locking in a lower mortgage renewal rate can allow you to get a fixed rate before rates increase. A mortgage rate calculator can be used to find out how a difference in mortgage rates can affect your monthly mortgage payments.

Mortgage Default Insurance and Renewals

You will not need to pay for CMHC mortgage insurance again if you renew your mortgage and your mortgage stays the same. If you have a high-ratio mortgage, such as if you made a down payment of less than 20%, you will have an insured mortgage. Mortgage default insurance premiums are charged upfront, which means that there are no annual premiums for CMHC, Genworth, or Sagen mortgage default insurance. However, do I have to pay CMHC fees again if I renew my mortgage?

You won't have to pay CMHC premiums twice if you are renewing your mortgage. If you switch lenders, your CMHC insurance will also be brought with you. This is because CMHC insurance is tied to your mortgage for the life of your mortgage, which is your mortgage’s amortization period. The most common amortization is 25 years, which means that you will have CMHC insurance on your mortgage for 25 years.

Your CMHC insurance will have a certificate number or an insurance certificate that you can provide to your new lender as proof that you already have mortgage loan insurance. However, if your mortgage changes, then you may need to pay for mortgage loan insurance again. This can happen if you refinance your mortgage by increasing your mortgage amount to borrow more money or extending your amortization period to reduce your monthly mortgage payments.

CMHC Premium Rebates for Refinancing

You may be eligible to receive a CMHC premium rebate if you need to pay for CMHC insurance again for a new mortgage. This might be because you are refinancing your mortgage, or if you have sold your home and are getting a new mortgage.

Refinancing your mortgage by increasing your mortgage amount will mean that you will be paying additional CMHC insurance premiums. As highlighted by the CMHC mortgage rules, you may receive a premium rebate depending on how much time has passed since your initial mortgage.

The premium rebate will decrease as more time has passed since your initial mortgage. If you've only had your mortgage for one year, you might be able to receive a premium rebate of 75% of the original CMHC premium, but you will need to pay CMHC premiums for your new refinanced mortgage amount.

If you have sold your home and are getting a new insured mortgage to pay for a new home purchase, CMHC portability allows you to port your existing CMHC insurance on your old mortgage to your new mortgage.

Suppose your new mortgage will be for less than your current mortgage. In that case, the loan-to-value (LTV) is less than or equal to your existing mortgage, and the amortization of the new mortgage is equal to or less than the amortization remaining on your current mortgage. You will not have to pay for CMHC insurance again.

If your new mortgage is higher, you will be charged either a premium on the additional money to be borrowed or a premium on the entire new mortgage amount.

Mortgage Renewal Rates

Mortgage renewal rates in Canada are fiercely competitive, and that’s because most Canadian mortgage borrowers will be looking to renew their mortgage multiple times over the life of their mortgage. 90.4% of mortgages are renewed at the same lender, however, the 9.6% that are refinanced or switched to another lender is also important to lenders.

To attract borrowers, mortgage lenders offer low mortgage rates for those looking to switch or transfer, while their current lender will try to offer a low mortgage renewal rate to ensure that they don’t switch to another lender. Mortgage renewal rates will often be as low as mortgage rates for new purchases, and lower than refinance rates.

Your mortgage lender will offer you a renewal rate when your mortgage is up for renewal. This mortgage renewal rate will be locked in if you agree to renew your mortgage for another term. This rate might not be the best rate available, which is why looking at other lenders can help you determine if your lender is offering a competitive rate.

Some banks offer a guarantee that your mortgage renewal rate will be the lowest in a certain period. For example, RBC offers a 30-day renewal rate guarantee, which promises that if rates decrease below your agreed-upon rate in the 30 days before your renewal date, then your mortgage rate at renewal will be the lowest rate during this 30-day period.

Mortgage Renewal Tips

Here are a few tips on how to save money when renewing your mortgage.

• Get in touch with other lenders: Look to see what mortgage rates other lenders are offering, and use mortgage brokers to help you in your search. If you receive a lower mortgage rate from another lender, provide it to your current lender to see if they will match or beat the lower rate. If they aren’t willing to match, then don’t be afraid to switch mortgage lenders.
• Take advantage of mortgage features: Your mortgage lender might offer special features, such as allowing you to make a one-time mortgage prepayment on your renewal date without any penalties. This will save you in interest costs.
• Renew early before your term ends: Many mortgage lenders offer early mortgage renewals up to four months in advance. If you think interest rates will increase, you might want to renew early to lock in your mortgage rate before they increase.

There are also tricks to saving money at renewal. You can shorten your amortization period to save on interest, and you can renew early with a blend and extend mortgage.

Changing Your Amortization at Renewal

Besides deciding between a fixed or variable rate and your term length, you might also want to consider changing your mortgage amortization. You can increase your regular monthly mortgage payments to pay off your mortgage faster if you can afford it. This will decrease your amortization.

Decreasing your amortization will reduce the overall interest cost that you will pay over the life of your mortgage. Your amortization will also decrease if your new mortgage rate is lower than your existing mortgage rate, even if you do not increase your monthly mortgage payments.

Extending your amortization period can be considered to be a mortgage refinance, which can come with penalties and fees. Some lenders allow you to shorten your amortization period at renewal with extra fees.

Blend and Extend Mortgages

A "blended mortgage" is when you blend two mortgage rates, your current mortgage rate and a mortgage renewal rate, into one mortgage rate. This allows you to "renew" your mortgage by mixing in a new mortgage rate before your mortgage renewal date, which means that you can avoid breaking your mortgage and paying prepayment penalties.

Blend and extend mortgages allow you to renew early or refinance your mortgage without penalties. Your blended mortgage rate will be somewhere between your existing mortgage rate and your mortgage renewal rate. Blend and extend mortgages are for a new term, and not just for the remaining length of your term.

For example, let's look at a 5-year fixed mortgage that has three years left in its term. It currently has a mortgage rate of 3%, but your mortgage lender is offering 2% for mortgage renewals. You don't want to pay the significant mortgage penalties upfront, which can amount to tens of thousands of dollars, but you still want to take advantage of the low mortgage rate being offered. You can get a blended mortgage rate to first blend the new rate into your mortgage.

You will get a blended rate somewhere in between your existing rate of 3% and the new 5-year rate of 2%, such as a blended rate of 2.50%. This blended rate is then extended for another mortgage term, which will be 5-years in this case. Some banks may still charge a prepayment penalty or charge administrative fees, but it will most likely not be charged upfront. Instead, these penalties and fees will be added to your blended mortgage rate. For example, after accounting for penalties and fees, your blended rate might be 2.60%.

How to Calculate Blended Mortgage Rates

You can blend and extend a fixed mortgage at any time if your lender allows blended mortgages. Your blended mortgage rate will be weighted based on the time remaining in your mortgage term.

For example, let's say that you have a 5-year (60-month) fixed mortgage at 3% with three years (36 months) left in its term. Your lender is currently offering a 5-year fixed mortgage rate of 2%.

You have already completed 3 years out of 5 years of your mortgage term, so there is more weight on the new mortgage rate of 2% for the remaining 2 years. Another way to look at this is to calculate the percentage weights.

• Three years completed out of a 5-year term = 60% complete
• 2 years remaining out of a 5-year term = 40% remaining

Your old 3% rate will remain for 40% of a new term, while the new 2% rate will account for 60% of a new term.

• (40% x 3%) + (60% x 2%) = 2.40%

Your mortgage will be immediately renewed at a blended rate of 2.40% for another 5-year term.

Calculation Breakdown

1. Calculate the time remaining in your current term

Three years have passed for a 5-year term, which means that there are still 2 years (24 months) left. You should have had a 3% rate for the remaining 2 years. To weight this portion, multiply your rate by the months remaining: 3% x 24 months = 72

2. Calculate the time remaining for a new term

A new term would be for 5-years, but since you already have 2 years left in your existing term, the new term of 5-years will be blended in for a partial duration. To weight this portion, first subtract the time remaining on your term from the length of the new term: 5 years - 2 years = 3 years (36 months)

You will then weight this portion by multiplying the new mortgage rate offered by the years remaining: 2% x 36 months = 72

3. Blend the portions together

The two portions will be blended together by adding them up: 72 + 72 = 144

4. Divide by the new term length

The new term length is 5-years (60 months). Divide the combined blended portions by the new term length to get your blended rate: 144 / 60 months = 2.40%

Your blended mortgage rate will be 2.40% for a new 5-year term.

Blend to Term Mortgages

The opposite calculation would be used for a blend to term, which is a blended mortgage only for the remaining length of your term. This is different from a blend and extend, which renews your mortgage for another term.

With a blend to term, your new mortgage rate will only be weighted based on the time left on your term.

Using the same example as above, your new 2% rate will only last for the two years remaining:

• (60% x 3%) + (40% x 2%) = 2.60%

A blend to term will have a blended rate of 2.60% for the remaining two years.

The less time there is on the term, the less impact the new rate will have on the blended rate. If only one year was remaining at 2%, then the blended rate would be 2.80% for the remaining one year.

• (80% x 3%) + (20% x 2%) = 2.80%

The main difference between a mortgage renewal and a refinance is that you will be borrowing more money with a refinance, and refinance rates are higher than renewal rates.

Mortgage refinancing is when you use your home equity to borrow more money on top of your existing mortgage. This then creates a new mortgage with a higher balance. On the other hand, mortgage renewals are only for the same balance amount. If you want to borrow more money when renewing your mortgage, you will need to refinance your mortgage. Another option to refinancing your mortgage is through a remortgage in Canada.

Mortgage renewals can only be done when your mortgage is near the end of its term, with lenders allowing early renewal periods a few months before. Mortgage refinances can be done at any time, but prepayment penalties will apply if you refinance before your mortgage is up for renewal. Use a mortgage prepayment penalty calculator to see how much it will cost to refinance your mortgage before the end of its term.

Mortgage Penalties

You won’t need to pay any mortgage penalties if you renew your mortgage within your lender’s allowed renewal period. If you renew or refinance earlier than that, then you will need to pay mortgage prepayment penalties. This can range from a few months of interest to tens of thousands of dollars from interest penalties.

Waiting until your renewal date can help you avoid penalties. If you can’t wait until your renewal date, then a blended mortgage can help you avoid penalties, although at a higher mortgage rate. An alternative to a mortgage refinance would be to use a home equity line of credit (HELOC), which allows you to borrow money from your equity without having to break your mortgage before renewal.

Mortgage Renewal FAQ

Do I Have to Do a Stress Test When I Renew My Mortgage?

No, you do not need to pass a mortgage stress test if you are renewing your mortgage with the same lender. The stress test is only done when you are applying for a new mortgage. Refinancing or switching lenders is considered applying for a new mortgage since you are replacing your old mortgage with a new mortgage. You won’t be applying for a new mortgage by renewing at the same lender, which means that you won’t have to pass the stress test again.

A reason for this is that you already would have had to pass the stress test when you initially applied for your mortgage at your current lender. You now have a history of making consistent and on-time mortgage payments with your lender, and since your mortgage won’t be changing, you won’t need to do another stress test. For refinancing your mortgage, your mortgage will change. This can affect the affordability of your mortgage, which is why lenders will need to test to see if you can afford your mortgage. Switching to another lender also means that you will be a new client to them with an unknown record of mortgage payments.

It is still important to be able to pass the mortgage stress test, no matter if you are renewing with the same lender or not. The purpose of the stress test is to test your affordability. If you’re not able to comfortably afford your mortgage, then you can be at risk of serious financial difficulties. Being able to pass the test also allows you to refinance or switch lenders, which you won’t be able to do if you fail the test. Failing the stress test can force you to renew with your current mortgage lender, which might not offer the best mortgage rates.

There are lenders, such as credit unions and monoline lenders, that do not have to check to see if you pass the stress test. You also won’t need to pass the test to switch to them or to refinance a mortgage with them. If you’ve failed a stress test and are unable to renew your mortgage with another major bank, then a credit union or monoline lender can be an alternative option.

How Often Are Mortgages Renewed?

Most mortgages in Canada have an amortization period of 25 years or less. For example, RBC, Canada's largest mortgage lender, has 77% of its mortgages having an amortization of 25 years or less. The typical mortgage length is 5 years, as 5-year mortgages are the most popular in Canada. This means that the average mortgage borrower will have to renew their mortgage four times before their mortgage is fully paid off if they continue to use only 5-year terms.

Borrowers with shorter mortgage terms will have to renew their mortgage more often. If a borrower were to use only 2-year mortgage terms, then they will need to renew their mortgage at least 12 times. For 3-year mortgage terms, there will need to be 8 renewals. This is all considerably more renewals than the four renewals needed for a 5-year mortgage term, which is why a 5-year term is a good option for those not wanting to go through the hassle of renewing their mortgage as often.

 Contact us today to discuss how our licensed mortgage brokers can help you with your Mortgage Renewal Options!