When your mortgage term is ending — or you need to make changes mid-term — you have two paths: renew or refinance. Knowing the difference, and when each makes sense, can save you thousands of dollars.
Renewal vs refinance: key differences
| Feature | Renewal | Refinance |
|---|---|---|
| What it is | Sign a new term when your current term ends | Break or restructure your mortgage for new terms |
| When it happens | At maturity (end of term) | Any time (but penalties apply mid-term) |
| Cost | Free if staying with same lender; minimal if switching | $2,000–$15,000+ (penalty + fees) |
| Effort | Low — can be as simple as signing a letter | Higher — full application, appraisal, legal |
| Rate options | Negotiate new rate, any term | Negotiate new rate, any term |
| Can you change lender? | Yes, no penalty at maturity | Yes, but penalty applies mid-term |
| Can you change mortgage amount? | No (same balance carries forward) | Yes (borrow more or pay down) |
| Can you access equity? | No | Yes (up to 80% LTV) |
| Can you consolidate debt? | No | Yes |
| Can you change amortization? | Limited (some lenders allow re-amortizing) | Yes (reset to 25 or 30 years) |
How mortgage renewal works
Your mortgage term (most commonly 5 years) is not the same as your amortization (most commonly 25 years). When the term expires, you must renew: sign a new term for the remaining amortization, negotiate a new rate, and continue paying.
Your current lender will mail you a renewal letter approximately 30 days before maturity. This letter offers a rate — but it is almost never the best rate available.
What happens at renewal
- Your term expires on the maturity date
- Your lender sends a renewal offer with a posted rate
- You can accept, negotiate, or switch to another lender
- If you do nothing, most lenders auto-renew into a 6-month open or 1-year convertible term at posted rates (very expensive)
Never sign the renewal letter without shopping around
This is the single most important piece of mortgage advice: do not sign the first renewal offer.
The renewal letter rate is almost always 0.25%–0.75% higher than what you can get by negotiating or switching lenders. On a $400,000 mortgage, even a 0.25% rate difference saves $5,000+ over a 5-year term.
Yet most Canadians simply sign and return the letter. According to industry data, roughly two-thirds of borrowers renew with their existing lender without negotiating or comparing rates.
How to get the best renewal rate
Step 1: Start early — 120 days before maturity
Most lenders will hold a rate for 90–120 days. Starting early means you can lock in a good rate and continue shopping. If rates drop, you get the lower rate. If rates rise, you have your held rate as a floor.
Step 2: Get quotes from 3+ lenders
Contact at least three lenders or work with a mortgage broker who can access dozens of lenders on your behalf. Online mortgage marketplaces also provide quick rate comparisons.
Step 3: Negotiate with your current lender
Take your best competing offer back to your current lender. They can often match or come close — they want to keep your business because acquiring a new customer costs them far more than retaining you.
Step 4: Evaluate the full picture
Rate is not everything. Consider:
- Prepayment privileges (10%, 15%, 20% annual lump sum)
- Portability (can you transfer the mortgage if you move?)
- Penalty structure (IRD calculation method varies dramatically between lenders)
- Restrictions on refinancing or additional borrowing
Switching lenders at renewal
At maturity, you can switch to any lender with no prepayment penalty. The process is similar to getting a new mortgage:
- You must qualify under the new lender’s guidelines and the stress test
- The new lender typically covers appraisal and legal transfer costs (often $1,000–$3,000 in savings)
- The switch takes 2–4 weeks to process
- Your existing lender will charge a discharge fee ($200–$350)
When switching makes financial sense
- The new lender offers a meaningfully better rate (even 0.10%–0.15% adds up)
- The new lender has better prepayment privileges or lower penalties
- You want to move from a collateral charge to a conventional charge
- You need features your current lender does not offer (portability, HELOC component)
When to refinance instead
Refinancing goes beyond a simple renewal. It involves breaking your current mortgage (or restructuring at maturity) to fundamentally change its terms. Consider refinancing when you need to:
- Access home equity — Borrow against your home value for renovations, investing, or other major expenses (up to 80% LTV)
- Consolidate high-interest debt — Roll credit card debt (20%+ interest) into your mortgage (4%–5% interest) to lower total interest costs
- Change your mortgage type — Switch from variable to fixed, move to a different amortization, or restructure a collateral mortgage
- Take advantage of significantly lower rates — If rates have dropped enough to offset the penalty, breaking mid-term can save money
Refinancing costs
| Cost | Typical Range | Notes |
|---|---|---|
| Prepayment penalty (variable) | 3 months interest ($3,000–$7,000) | Based on remaining balance |
| Prepayment penalty (fixed — IRD) | $5,000–$25,000+ | Depends on rate differential and remaining term |
| Appraisal fee | $300–$500 | Sometimes waived by new lender |
| Legal fees | $1,000–$2,000 | New registration and discharge |
| Discharge fee | $200–$400 | Charged by current lender |
| Title insurance | $200–$400 | — |
| Total typical cost | $2,000–$15,000+ | Mostly driven by the penalty |
The penalty is by far the largest cost. For variable-rate mortgages, it is predictable (3 months interest). For fixed-rate mortgages, the IRD penalty can be substantial. Use a mortgage penalty calculator to estimate your cost.
Break-even math: when does refinancing save enough?
The key question is simple: does the interest savings over your remaining term exceed the cost of breaking?
Worked example
| Detail | Value |
|---|---|
| Current mortgage balance | $400,000 |
| Current rate | 5.50% (5-year fixed) |
| Time remaining in term | 3 years |
| New rate available | 4.00% (5-year fixed) |
| Rate difference | 1.50% |
Penalty calculation (IRD):
$400,000 × 1.50% × 3 years = $18,000
Plus additional refinancing costs: ~$2,000
Total cost to refinance: ~$20,000
Monthly savings at new rate:
- Payment at 5.50%: ~$2,440/month (25-year amortization)
- Payment at 4.00%: ~$2,104/month
- Monthly savings: ~$336/month
Break-even period: $20,000 ÷ $336 = 59.5 months (~5 years)
In this scenario, refinancing does not make financial sense for only 3 remaining years. The penalty is too high relative to the savings. However, if you are refinancing into a new 5-year term and will hold for the full term, total savings over 5 years would be approximately $20,160 — roughly break-even.
This is why you must run the numbers. Small changes in the rate differential, remaining term, or penalty method can flip the answer.
Renewal vs refinance vs HELOC
| Scenario | Best Option |
|---|---|
| Term is expiring, just need a new rate | Renewal (or switch lenders) |
| Need to access $50K+ in equity | Refinance |
| Need flexible, ongoing access to equity | HELOC |
| Want to consolidate $30K in credit card debt | Refinance (roll into mortgage) |
| Rate has dropped 1%+ with 3+ years remaining | Run break-even math — may justify refinancing |
| Want to change from 25-year to 30-year amortization | Refinance |
| Mortgage is already at maturity | Renewal (cheapest and simplest) |
Timeline: when to start shopping
| Timeline | Action |
|---|---|
| 120 days before renewal | Start shopping, contact a mortgage broker, request rate holds |
| 90 days before renewal | Collect 3+ quotes, compare total cost of each option |
| 60 days before renewal | Make your decision — renew with current lender or initiate switch |
| 30 days before renewal | Finalize paperwork, sign documents, complete appraisal if switching |
| Maturity date | New term begins seamlessly |
If you do nothing, your lender will typically auto-renew you into an expensive open or convertible term. Avoid this by acting well in advance.
The Bottom Line
Renewal is simple, free, and right for most borrowers — as long as you negotiate and shop around rather than blindly signing the renewal letter. Refinancing costs more and requires more effort, but it is the right move when you need to access equity, consolidate debt, or lock in a significantly lower rate that justifies the penalty.
The biggest mistake Canadians make is not treating renewal as a negotiation. Your lender expects you to sign. Use that leverage by bringing competing offers to the table — or switch to whichever lender gives you the best deal.