Roughly four to six months before your term ends, your lender sends a renewal offer. Signing and returning it takes about a minute, which is exactly the point. That convenience is worth a great deal — to them.
What the difference is worth
Take a $420,000 balance with twenty years of amortisation remaining. Compare an illustrative renewal offer of 5.79% against a competitive 4.49%:
| Offer at 5.79% | Shopped at 4.49% | |
|---|---|---|
| Monthly payment | $2,941.89 | $2,645.48 |
| Difference per month | $296.41 | |
| Over a five-year term | $17,785 | |
| Interest paid over five years | $111,438 | $85,738 |
| Interest saved | $25,700 | |
That is $25,700 of interest for a decision that takes an afternoon. And because more of every payment now goes to principal, you also end the term with a smaller balance.
Why renewal offers are not sharp
Lenders price on the probability you will accept. A borrower who signs without comparing is not rate-sensitive, and the offer reflects that. Rate-sensitive borrowers are expected to call and negotiate — and often get a better number simply for asking.
What renewal makes possible
Renewal is the one moment you can restructure without a prepayment penalty. Worth considering:
- Switching lenders — no penalty applies at maturity. The new lender usually covers the switching costs.
- Changing the amortisation — shorten it to clear the mortgage sooner, or extend to ease monthly pressure.
- Changing payment frequency — moving to accelerated bi-weekly costs nothing and shortens the amortisation.
- Changing the term or type — your circumstances may have moved since you last chose.
Note that a straight switch is different from a refinance. If you want to increase the balance or take out equity, that is a refinance and triggers a full qualification.
A timeline that works
- Six months out — many lenders will hold a rate for you from this point. Start looking.
- Four months out — compare offers across lenders; begin paperwork if switching.
- Two months out — have the decision made. Switches need time to register.
- Maturity — if nothing is signed, most lenders roll you onto a posted or open rate, typically well above market.
Breaking early instead
Occasionally the gap is wide enough to justify breaking before maturity. On a fixed mortgage the penalty is the greater of three months' interest or the interest rate differential — and the IRD can be substantial. Get the exact figure from your lender in writing, then weigh it against the saving. Sometimes it works; often it does not.
Figures in this article are illustrative and calculated using Canadian semi-annual compounding. Rates shown are examples, not offers. Government programme thresholds and insurance premiums are revised periodically — confirm current numbers before making a decision.
Renewing in the next six months? Compare your options with the renewal calculator.
Written by Site Administrator
