As a Canadian homeowner, one of the most significant financial decisions you will face is whether to renew your mortgage early before your current term expires. Renewing several months before your term is up can bring many benefits; however, it also carries risks like losing out on better rates later or reducing flexibility.
Whether you are considering renewing a few months early to lock in lower rates or want to understand how aligning your mortgage details with life changes could benefit you, this guide will examine everything you need to know as a Canadian homeowner about early mortgage renewal in 2024 so you can make the most informed and strategic decision.
What is Early Mortgage Renewal?
Early mortgage renewal means renewing your existing mortgage contract with your current lender before your mortgage term expires.
For example, if you have a 5-year term mortgage, early renewal allows you to sign a new contract before the full 5-year term ends.
In Canada, most major lenders allow early mortgage renewal 4-6 months before maturity without penalty. During this early renewal window, your lender will send you an offer letter presenting their new mortgage rates, different term length options, estimated principal, interest payments, and paperwork to accept the offer if you decide to renew early makes sense.
| Financial Institution | Early Renewal Window |
|---|---|
| RBC | 180 days |
| TD | 120 days |
| BMO | 180 days |
| Scotiabank | 180 days |
| CIBC | 150 days |
| National Bank | 180 days |
| Desjardins | 120 days |
Early mortgage renewal allows Canadian homeowners to lock in lower market interest rates in advance or proactively change their mortgage structure to align with their financial situation, life plans, or economic outlook shifts.
Why Canadian Homeowners Choose to Renew Mortgage Early?
There are a few scenarios where early mortgage renewal in Canada could benefit homeowners:
To Lock in a Lower Interest Rate
The number one appeal of early mortgage renewal is it gives borrowers the chance to lock into a lower interest rate before their current term expires. This allows them to reduce their borrowing costs monthly and over the life of the mortgage. Lower rates can be secured early in a few different situations:
- Rates Decline
If average mortgage rates in Canada have dropped since the homeowner initially took out their mortgage, renewing 4-6 months early allows them to lock in those lower rates in advance and maximize interest cost savings.
For example, if 5-year fixed mortgage rates were 4% when you got your mortgage two years ago, but current rates have since dropped to 3%, early renewal could allow you to lock in that 1% rate reduction.
- Lender Early Renewal Promotions
Lenders often offer promotional discounted rates or bonuses to incentivize existing customers to renew their mortgages early and stay with them for another term.
- Leverage to Negotiate
Renewing slightly early gives borrowers more time to shop around and negotiate with multiple lenders to find the lowest interest rate possible before locking in. They can even use competing rate offers to negotiate a lower rate with their current lender.
By locking in lower rates, Canadian homeowners secure reduced monthly mortgage payments and guaranteed interest cost savings over the next 3-5 years.
Read more: Should I get a Mortgage rate lock?
To Change the Type or Terms of Their Mortgage
Another critical advantage of early mortgage renewal is that it allows borrowers to make structural changes to their mortgage contracts. For example:
- Switch Mortgage Types
Homeowners can use the opportunity to switch from a variable-rate mortgage to a fixed-rate mortgage or change between a closed mortgage and an open mortgage. This allows them to find the structure that best fits their risk tolerance.
Read more: Fixed vs. Variable Rate Mortgage in Canada
- Modify the Amortization Term Length
Early renewal allows Canadians to shorten or extend their mortgage amortization period. For instance, by renewing early, they could go from a 25-year amortization schedule to a 20-year schedule or vice versa.
This strategic flexibility to restructure the mortgage allows borrowers to optimize it to align with shifts in their financial situation, life plans, economic outlook, or risk appetite.
For Peace of Mind
Early renewal can provide valuable peace of mind for homeowners who want to lock in their rates before additional increases occur.
Canadians who renew early in a rising rate environment don’t need to stress about mortgage rates continuing to rise before their term is up, providing confidence in predictable payments.
What are the Pros and Cons of Early Mortgage Renewal in Canada?
While early mortgage renewal certainly has several potential benefits that make it an appealing option for some Canadian homeowners, there are also some essential considerations to remember.
Pros of Early Renewal
Potential Lower Interest Rate
As mentioned, securing a lower market is the biggest benefit of renewing a mortgage early. Even a tiny 0.25% rate on decrease could save a borrower over $150 monthly and $9,000 over a 5-year term.
It protects you from rising rates’ impact and uncertainty and eliminates stress since your rate is fixed before any additional rate hikes occur.
Strategic Flexibility
The ability to align your mortgage terms and structure with your evolving life plans and goals is extremely valuable. Early renewal allows you to adjust your mortgage details to match changing circumstances.
Cons of Early Renewal
Lose Future Negotiation Opportunities
If you renew early, you lose all future negotiation leverage until your next term expires. You’re locked in. Rates can be unpredictable and could improve again before your term ends.
By accepting your current lender’s offer, you lose the chance to switch lenders and shop in the broader market. Your current lender knows you may take their early offer for convenience. But another lender could beat it. Waiting keeps your options open. You can use offers from multiple lenders close to maturity to negotiate the lowest rate possible.
Could Miss Out on Lower Rates Later
Mortgage rates can be unpredictable. While renewing 4-6 months early locks in a low rate, rates could continue dropping afterward. By waiting until your regular renewal window, you retain the flexibility to get those lower rates if they materialize.
For example, if you renewed early at 6% but then rates fall to 5.75% near your maturity date, you’ve missed out on potential savings that were still on the table.
Penalties If Too Early
Another financial risk is renewing too early, before your lender’s early renewal window. This will trigger stiff prepayment penalties that can negate any savings.
Ensure you know your lender’s exact window to avoid a costly mistake. Renewing even one day too early can cause thousands in penalties and erase potential savings.
Process of Renewing Your Mortgage Early in Canada
If you’re considering renewing your Canadian mortgage early, here is an overview of what to expect and how the early renewal process typically works:
Review Early Renewal Offers But Also Shop Around
Once you enter the early renewal window, your existing mortgage lender will send you an offer presenting their new discounted rates so you can renew early directly with them.
While this offer may seem convenient, it is highly recommended that you shop around and compare rates from other Canadian lenders before deciding.
Working with an experienced mortgage broker gives you access to rates and promotions from a wide range of lenders all at once. This provides significant leverage to secure the absolute lowest interest rate possible.
Understand Any Fees or Penalties Associated
If you decide to switch lenders, you will likely need to pay a mortgage discharge or transfer fee of $300-$500 to your existing lender to move your mortgage.
If you renew your mortgage extremely early before your current lender’s defined early renewal window, you may trigger mortgage prepayment penalties. These often amount to three months of interest or more. Staying within your lender’s specified renewal window avoids any costly prepayment penalties.
Always factor in these costs when calculating whether early renewal and switching lenders make sense for your situation.
Confirm Exactly When Your New Rate & Terms Will Take Effect
It’s important to inquire directly with your lender and get clarity around exactly when your new interest rate and other mortgage terms will take effect if you renew early. There are two common scenarios:
- The new rate and mortgage terms may take effect immediately upon signing the renewal paperwork, even months before your term expires.
- Alternatively, the new rate and terms may not apply until your maturity date, even if you formally renew months in advance.
This will impact your monthly cash flow and expenses, so it’s essential to understand precisely when the changes take effect. Refrain from assuming; ask your lender directly.
Key Factors to Consider Before Renewing Your Mortgage Early
When deciding if early mortgage renewal makes sense for your situation, here are some essential factors to take into account:
Your Financial Plan
Will your income, expenses, savings rate, or retirement goals change dramatically over the next five years based on your career, family, education, or other financial goals? Consider how an early renewal could fit into your long-term objectives.
Life Situation and Upcoming Changes
Are any major life events coming up, such as having kids, getting married or divorced, moving homes, changing careers, retiring, or taking on a new job? These could significantly impact your finances, so consider renewing early to align your mortgage with anticipated changes.
Income Changes
Do you reasonably expect your household income to rise or fall substantially shortly? Renewing early allows you to strategically increase or decrease your monthly mortgage payment to align with changing income.
Interest Rate Outlook
Are mortgage rates projected by expert economists and banks to steadily increase over the next 6-12 months? If so, renewing 4-6 months early could allow you to prudently lock in your rate for peace of mind before additional rate hikes materialize.
Home Ownership Plans
Do you plan to sell your current home before this upcoming mortgage term ends? If selling within the term is likely, it makes sense to pay off your mortgage completely upon maturity rather than renewing.
Taking the time to evaluate these personal finance factors and your future outlook thoroughly will help determine if an early mortgage renewal is the optimal move for your situation.
Alternatives to Early Mortgage Renewal for Canadians
While early renewal can be a solid option for many Canadians, it’s important to keep in mind it’s not the only option available. Here are a couple of alternative paths to discuss with your mortgage broker as well:
- Waiting Until the Regular Renewal Period – One option is to wait until the last 4-6 months before maturity (the typical renewal window) to maintain maximum flexibility if rates improve further downward. This retains more options before locking in a rate.
- Refinancing Your Entire Mortgage – Rather than early renewal, Canadian homeowners could consider fully refinancing their mortgage for a different interest rate, to access home equity for other financial goals, or to extend the overall amortization period if the early renewal terms won’t meet their needs.
- Paying Off the Mortgage – If you plan to sell your home within the next 1-2 years, making extra lump sum payments to pay off your mortgage completely upon maturity rather than getting locked into a new 3 – 5-year term may make sense.
- Open vs. Closed Mortgage – If you need flexibility but are unsure about renewing many months early for a closed term, consider switching your mortgage to an open structure, which allows you to pay any amount at any time without penalties.
Discussing these options and scenarios with an experienced mortgage broker will help you select the most strategic approach based on your unique financial situation, outlook, mortgage details, and long-term financial goals.
Expert Tips for Early Mortgage Renewal Success in Canada
If, after carefully analyzing your circumstances, you determine early mortgage renewal does make good strategic sense, here are some expert tips for ensuring a smooth and successful early renewal process:
- Start Planning Early – It’s recommended to start researching rates and options at least 120-180 days before your current mortgage term expires. This gives you plenty of runway.
- Thoroughly Compare All Offers – Work with an experienced broker who can quickly access the best early renewal rates and promotions from up to 30+ lenders across the country.
- Negotiate for the Absolute Lowest Rate – With all that information, use competing lender offers to motivate your preferred lender to beat their early renewal rate even further.
- Mind the Fine Print Details – Review all terms carefully and fully understand renewal dates, when your new rate applies, potential fees, and other key details. Don’t gloss over the fine print.
- Carefully Assess Your Personal Tradeoffs – Don’t rush into renewing early without first carefully analyzing both the benefits and potential drawbacks of your specific situation and mortgage details.
Conclusion
The option to renew 4-6 months before your mortgage term expires allows you to act well before maturity to lock in interest rates and terms based on your forecast of future rate direction and assessment of your financial situation. However, a potential downside is reduced flexibility if rates move downward after you renew early. You’ll be locked in.
The keys are taking the time to thoroughly compare all lender offers, fully understanding your short- and long-term financial needs and goals, and negotiating the best deal possible. This disciplined approach ensures you maximize interest cost savings at your next renewal while aligning your mortgage details with your overall financial objectives.
Get Ready for Your Early Mortgage Renewal
Determining if early mortgage renewal is right requires assessing your financial goals, personal situation, risk tolerance, mortgage details, and interest rate outlook.
At Best Mortgage Online, our mortgage experts have helped thousands of Canadian homeowners with early renewal, refinancing, purchasing, and more. We provide expert insights tailored to your situation to determine if early renewal or an alternative path best meets your needs. Get in touch to review your mortgage situation and goals!
FAQs
How much can you save by renewing your mortgage early in Canada?
By renewing early when rates are lower, you can save hundreds of dollars per month and thousands of dollars over the mortgage term in interest costs. Even a 0.25% rate drop can save over $100 per month.
What is the best time of year to renew your mortgage early?
The best time is typically when the Bank of Canada cuts interest rates, causing mortgage rates to decline. By renewing a few months early, you can lock in a lower rate.
Can you negotiate a lower rate when renewing a mortgage early in Canada?
Yes, you can negotiate an even lower rate than the early renewal offer by shopping lenders and using competing offers to motivate your preferred lender to beat their rate.
Does early mortgage renewal in Canada affect your credit score?
Renewing early with the same lender doesn't require a credit check. Switching lenders may need approval.
Can you change mortgage lenders when renewing early in Canada?
Yes, you can switch lenders when renewing early. But you'll pay a discharge fee and may need to requalify with the new lender.
What documents do you need for early mortgage renewal in Canada?
You'll need proof of income, a property tax receipt, and possibly an appraisal. Other documents depend on your specific situation. Ask your broker.
Can you change the amortization period when renewing your mortgage early?
No, you cannot change the amortization period via early renewal in Canada. You would need to refinance to adjust the amortization schedule.
Is early mortgage renewal in Canada right for variable-rate mortgages?
It can be, to lock in lower variable rates in advance or switch to fixed rate. But variable rates can also fall further so consider carefully.
What are the risks of renewing your mortgage too early in Canada?
Renewing before the lender's early renewal window leads to stiff prepayment penalties that can negate any potential savings.
What should you look for when shopping for early mortgage renewals in Canada?
Compare rates from multiple lenders and negotiate for the lowest rate. Also, confirm when your new rate takes effect and any fees involved.