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Insights & advice

Should you renew or refinance your mortgage?

July 2022 – 15 min read

Key takeaways

  • When your mortgage term ends, you may choose to renew or refinance your mortgage.

  • This means you may want to keep paying your mortgage as it is, change the terms of your mortgage, or access some of the equity in your home to pay for things like renovations.

  • Which process you choose will depend on your personal circumstances, and research along with expert advice can help you decide which is right for you.

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Is your mortgage term expiring?

If you’re 1 of the millions of Canadians who have a mortgageOpens in a new window, you’ll have signed a contract with your lender at the time you took it out.

This contract is in effect for a period of time, known as the mortgage term. This is commonly a 5-year period, but it can range from a few months to several years. Once this term is close to expiring, you’ll have to decide what to do with your mortgage. You may choose to pay off your house in full, although this isn’t common. Most people choose to keep their mortgage through 1 of 2 ways – by renewing it or refinancing itOpens in a new window.

Renewing a mortgage

If you choose to simply renew, you agree to keep paying  off your current mortgage but with  a new agreement in place. When your term is nearly up, your lender will be in touch to offer a new mortgage rate and term. You may receive phone calls before receiving a  renewal statement that includes:

  • The balance or remaining principal as of the renewal date

  • The payment frequency

  • The term

  • Any additional fees or applicable charges

At this point, it’s a good idea to review not only the offer, but also your wider financial picture to see if the offer suits your circumstances.

For example, if you’re earning more than when you received your mortgage or have received a financial gift or inheritance, you may want to use this additional income to increase your mortgage payments to pay off your mortgage sooner. If you’ve taken time off work to start a family, changed jobs or become self-employed, you may wish to keep your payments the same.

Thinking about how much you owe, the interest rates, and how long you plan to keep your home will help you to decide how long of a term to select at renewal. At renewal, you may want to shop around to see what term/rate other lenders could offer you

Of course, you don’t need to wait until your mortgage term is nearly up to start thinking about the renewal process. In the months leading up to your mortgage end-date, you can start doing some research and looking at your options.

You’ll likely have the chance to renew your mortgage several times, but you may reach a point where you’d like to access some of the equity in your home instead – a process known as refinancing.

Refinancing a mortgage

You can take the opportunity to renovate by refinancing your mortgage to access the equity in your home either when you term is up, or before it ends.

What’s equity?

Equity is the difference between the value of your home, and how much you still owe on your mortgage. The available equity in your home will increase as you pay down your mortgage, or as the value of your home goes up.

  • Let’s look at an example. Let’s say your home is worth $500,000, and you owe $350,000 on your mortgage. This would mean you have $150,000 in home equity.

Why access the equity in my home?

There can be many reasons why you may want to access some of the equity in your home, such as:

How do I access the equity in my home?

When you refinance your home, you can get a home equity line of credit (HELOC) or increase your existing mortgage balance.

You can borrow up to 80% of the appraised value of your home, minus the amount still owing on your mortgage.

Refinancing could impact the interest rate on your new mortgage, and there may be fees applicable such as legal or appraisal fees. However, interest rates on loans secured against your home tend to be lower than other types of loans. Refinancing could also impact the money you receive if you sell your home as you’ll have a larger mortgage, which is another factor to think about.

Not all lenders will offer home equity financing options, so if this is something you’re interested in, make sure you ask your lender in advance of your term ending so you can discuss your options. As refinancing technically involves taking out another loan, you’ll need to go through an approval processOpens in a new window before you can borrow against your home equity.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.