What happens if you do nothing at renewal?

It's that time again. Your mortgage term is coming to an end, and soon you'll receive a renewal statement from your lender. For some, it might seem easiest to just sign on the dotted line and send it back. But what happens if you do nothing at renewal? And more importantly, is that truly in your best interest?

As a mortgage broker here in Burnaby, I've seen firsthand how crucial the renewal period is for homeowners. It's not just a formality; it's a golden opportunity to ensure your mortgage continues to align with your financial goals.

The Auto-Renewal Trap

When your mortgage term ends, you have to renew it unless you've paid off the balance in full. Most Canadian mortgages are amortized over 25 to 30 years, but they're broken into shorter terms, typically 1 to 5 years. At the end of each term, you'll need to enter into a new agreement for the remaining balance.

Your current lender is required to send you a renewal statement at least 21 days before your term expires. This statement will outline your remaining balance, the interest rate they're offering, and the proposed new term. If you simply do nothing, your lender might automatically renew your mortgage at their current posted rate. While convenient, this "posted rate" is rarely the most competitive rate available. Accepting it without negotiation could mean paying significantly more in interest over your next term.

Why "Set It and Forget It" Can Cost You

Let's break down why simply accepting your lender's initial renewal offer, or worse, letting it auto-renew, is almost always a costly mistake:

• Higher Interest Rates: Lenders often offer existing clients a rate that's higher than what they would give to a new customer, or what you could get by shopping around. This "posted rate" is essentially their starting point for negotiation, not their best offer.
• Missed Opportunity for Better Terms: Renewal is your chance to reassess your financial situation and adjust your mortgage accordingly. Perhaps you want to change your payment frequency, make a lump-sum payment, or switch between a fixed and variable rate. Doing nothing means you stick with the old terms, even if they no longer suit you.
• Ignoring Market Changes: The mortgage landscape is constantly evolving. Interest rates fluctuate, and new products become available. By not actively engaging in the renewal process, you miss out on potentially significant savings or more flexible options that have emerged since you last signed your mortgage agreement.

Your Options at Renewal

You have more power than you might think when your mortgage comes up for renewal. Here are your main options:

1. Renew with Your Current Lender (But Negotiate!): This is often the most convenient option, as your existing lender doesn't typically require you to re-qualify or pass the mortgage stress test again, provided you're not making major changes like increasing your loan amount or extending your amortization. However, it's crucial to negotiate. Tell your lender about better offers you've received from other institutions – they may be willing to match or beat them to keep your business.
2. Switch to a New Lender: You are absolutely not obligated to stay with your current lender. Switching can often lead to a better interest rate and more favourable terms. While there might be some costs involved, such as discharge fees from your old lender or appraisal fees for the new one, many new lenders are willing to cover some or all of these to attract your business. As of November 21, 2024, the mortgage stress test is no longer required for "straight switches" of uninsured mortgages between lenders at renewal, as long as the loan amount and amortization period remain unchanged. This makes switching even more accessible for many homeowners. Insured mortgages already had this exemption.
3. Refinance Your Mortgage: If your financial situation has changed significantly, or you want to access equity in your home, you might consider refinancing. This involves breaking your current mortgage and setting up a new one, potentially with a larger loan amount or different terms. This is a more involved process than a simple renewal or switch and will typically require you to requalify and pass the mortgage stress test.

The Role of a Mortgage Broker in Your Renewal

This is where I come in. Many homeowners think they have to do all the legwork themselves, but a mortgage broker can be an invaluable asset during renewal.

• Shopping Around for You: I have access to a wide network of lenders, not just the big banks. I can compare rates and terms from various financial institutions to find the best deal that suits your needs.
• Negotiating on Your Behalf: I can leverage my relationships and knowledge of the market to negotiate with your current lender, or potential new lenders, for a better rate than you might get on your own.
• Expert Advice: I can help you understand the fine print, explain the pros and cons of different mortgage products (fixed vs. variable, different term lengths), and ensure you're making an informed decision. This includes reviewing your amortization period to ensure it aligns with your long-term goals. While extending your amortization can lower monthly payments, it can also cost you tens of thousands more in interest over the life of the loan.
• Navigating Complexities: Whether it's understanding CMHC insurance rules (which generally don't require re-payment at renewal if you stay with your lender or if your loan amount and amortization don't increase when switching), or the nuances of the BC property transfer tax (which isn't typically applicable at renewal unless there's a change in ownership), I can guide you through it.
• Utilizing First-Time Buyer Programs (if applicable): While renewals aren't typically for first-time buyers, if you're helping a family member with their first purchase, or if your circumstances have changed, we can discuss options like the First Home Savings Account (FHSA) or the Home Buyers' Plan (HBP). The FHSA allows tax-deductible contributions and tax-free withdrawals for a first home, with a lifetime maximum of $40,000. The HBP allows you to withdraw up to $60,000 from your RRSPs for a down payment, which must be repaid over 15 years. You can even combine both programs for the same home purchase.

Don't wait until the last minute. Most lenders allow you to start the renewal process up to 120 days (or even 180 days) before your term ends without penalty. This gives you ample time to explore your options and secure the best possible outcome.

FAQ

Q: What is a "posted rate" and why is it usually not the best option? A: A posted rate is the standard, often higher, interest rate that lenders publicly advertise. It's rarely their most competitive offer, and by simply accepting it, you miss out on potential discounts and negotiations that could save you thousands over your mortgage term.

Q: Do I have to pay the mortgage stress test again if I switch lenders at renewal? A: As of November 21, 2024, if you're making a "straight switch" of your mortgage to a new lender at renewal (meaning your loan amount and amortization period don't change), you generally won't need to pass the mortgage stress test again, whether your mortgage is insured or uninsured.

Q: Can I extend my amortization period at renewal to lower my payments? A: While extending your amortization period can reduce your monthly payments, it also means you'll pay significantly more in interest over the life of your mortgage. It's important to weigh the short-term payment relief against the long-term cost. If your mortgage is insured, extending the amortization beyond 25 years might require you to have at least 20% equity in your home.

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Don't let your mortgage renewal be an afterthought. Be proactive, explore your options, and make sure your mortgage is working as hard as it

Related mortgage resources

• Explore my mortgage renewal options to review your renewal before signing.
• Explore my refinancing options to compare ways to restructure your mortgage.
• Read Navigating Mortgage Renewal Notices in Burnaby: Your Strategic Action Plan for a related BC mortgage perspective.