How to Renew Your Mortgage or Switch Lenders at Renewal in Canada

What happens when your mortgage term ends?

A mortgage contract lasts for a specific term, often several years. Unless the mortgage is paid in full, you normally need another mortgage term when the existing one ends.

At renewal you can:

• renew with your current lender;
• negotiate a different rate or different mortgage terms with that lender;
• switch to another lender that offers a better mortgage;
• pay the remaining mortgage balance in full.

Renewal is an important point to compare the total cost of the mortgage rather than simply signing the offer your current lender sends you.

When should your lender send the mortgage renewal statement?

If your mortgage is with a federally regulated financial institution such as a bank, the lender must provide renewal information at least 21 days before the end of the existing term.

The renewal statement must include information such as:

• the remaining principal balance at renewal;
• the interest rate;
• payment frequency;
• the new term;
• applicable charges or fees.

The statement must also specify that the interest rate offered will not increase before the renewal date.

If the federally regulated lender does not intend to renew your mortgage, it must also notify you at least 21 days before the end of the term.

Review the official FCAC mortgage renewal guidance before accepting a renewal offer.

When should you start shopping for a mortgage renewal?

Do not wait for the renewal letter. The Financial Consumer Agency of Canada recommends that homeowners start shopping around a few months before the end of the mortgage term.

That gives you time to compare rates, terms and restrictions, obtain approval from another lender and deal with legal or registration work if you decide to switch.

Compare more than the headline interest rate. Look at:

• fixed versus variable interest;
• length of the mortgage term;
• remaining amortization;
• payment frequency;
• prepayment privileges;
• prepayment penalties;
• portability;
• fees to discharge or transfer the mortgage;
• restrictions associated with the mortgage security.

Can you negotiate the mortgage renewal rate?

Yes. The rate in your renewal notice does not necessarily have to be the rate you accept.

FCAC recommends negotiating with your lender and telling it about competing offers from other financial institutions or mortgage brokers. Your lender may ask you to provide proof of those offers.

A lower interest rate can be valuable, but also compare the mortgage's flexibility and potential penalties. A slightly lower rate may not be a better deal if the mortgage has significantly more restrictive prepayment or discharge terms.

What happens if you do nothing before renewal?

Depending on your mortgage agreement, the lender may automatically renew the mortgage. Your renewal statement should indicate whether automatic renewal is planned.

FCAC warns that taking no action may mean you do not receive the best available interest rate and conditions.

Even if you plan to remain with the same lender, review and negotiate the offer before the renewal takes effect.

How do you switch mortgage lenders at renewal?

You are not required to stay with your current lender. If another lender offers terms that better suit your needs, you can apply to move the mortgage at renewal.

The new lender must approve the application. FCAC notes that a new lender may use different qualification criteria than your existing lender.

A typical switch involves:

1. applying for the new mortgage;
2. receiving approval from the new lender;
3. confirming the payout or transfer of the existing mortgage;
4. signing the new mortgage and registration documents;
5. removing or transferring the existing lender's charge;
6. registering the new lender's mortgage security.

You may need to meet with a lawyer or notary to sign registration documents.

Do you have to pass the mortgage stress test again when switching lenders?

Not always. Current federal rules make straight switches at renewal easier than they were previously.

Uninsured mortgages

OSFI currently states that it does not expect the minimum qualifying rate to be applied to an uninsured straight switch at renewal when a borrower moves the mortgage from one federally regulated lender to another and there is no increase to:

• the amortization period; or
• the loan amount.

For uninsured mortgages where the minimum qualifying rate does apply, the current OSFI rate is the greater of the mortgage contract rate plus 2 percentage points or 5.25 percent.

You can check the current OSFI mortgage qualification rules.

Insured mortgages

Federal policy allows borrowers with insured mortgages to switch lenders at renewal without requalifying under the mortgage stress test.

This does not guarantee approval. The new lender can still review your creditworthiness and other aspects of the application under its own underwriting rules.

What if you increase the mortgage or extend the amortization?

Increasing the principal or extending the amortization changes the transaction from a simple straight switch. Different qualification and mortgage-insurance rules may apply.

FCAC also warns that extending amortization to reduce monthly payments increases the amount of interest paid over time and can add thousands or tens of thousands of dollars to the total cost.

What does it cost to switch mortgage lenders?

There is no single national switching fee. FCAC identifies several costs that may apply:

• mortgage discharge fees;
• registration fees;
• transfer or assignment fees;
• appraisal fees where the new lender requires a property valuation;
• administration fees;
• lawyer or notary fees.

Ask the new lender whether it will cover some or all of these expenses. Some lenders offer to absorb switching costs as part of a mortgage offer.

How much can a mortgage discharge cost?

Mortgage discharge rules and fees vary by province, territory and lender.

FCAC states that where discharge fees are not regulated by provincial or territorial law, a lender's discharge charge typically ranges from no charge to about CAD 400.

Professional fees for a lawyer, notary or commissioner of oaths involved in a discharge are typically about CAD 400 to CAD 2,500.

These are general ranges, not fixed government fees. Your actual amount depends on your province or territory, lender and transaction.

See the official mortgage discharge guidance for details.

Will you pay a penalty for switching lenders?

Timing matters. A prepayment penalty may apply if you break a closed mortgage contract or transfer the mortgage to another lender before the existing term ends.

Prepayment penalties can be substantial. FCAC warns that they can cost thousands of dollars.

If you are considering switching before maturity rather than at renewal, ask your current lender for the exact payout amount and penalty before making a decision. Compare that cost with the interest savings offered by the new lender.

The FCAC mortgage prepayment penalty guide explains when these charges may apply.

Will you have to pay mortgage default insurance again?

Not necessarily. If your existing mortgage already has mortgage loan insurance, tell the new lender.

FCAC states that this may help prevent paying an insurance premium twice. Ask your current lender for the insurance certificate number and, where applicable, a copy of the insurance certificate.

A new mortgage loan insurance premium may be required if you:

• increase the loan amount; or
• extend the amortization period.

The exact insurance treatment depends on the mortgage and insurer.

What if your mortgage has a collateral charge?

A collateral charge can make switching lenders more complicated and potentially more expensive.

FCAC states that removing a collateral charge and registering a new mortgage can involve additional fees. Before the collateral charge can be removed, you may have to repay in full or transfer other loan agreements secured by the same charge.

This can include a home equity line of credit, line of credit or another loan secured against the property.

If you do not know how your mortgage is registered, ask your lender, lawyer or notary. FCAC recommends allowing a few months before renewal to investigate your options.

What should you prepare before applying to another lender?

There is no universal federal document checklist for every mortgage switch because each lender sets its own underwriting requirements.

Before applying, have your current mortgage information available, including:

• outstanding balance;
• maturity date;
• current interest rate;
• remaining amortization;
• payment frequency;
• mortgage security type;
• mortgage insurance information if applicable.

The new lender may request additional financial, employment, income, debt, identification or property documents before approving the mortgage.

Should you extend your amortization at renewal?

Extending the amortization can reduce required payments, but the trade-off is important: you remain in debt longer and generally pay more interest over the life of the mortgage.

FCAC specifically advises homeowners to think carefully before extending amortization simply to lower payments because the additional interest can amount to thousands or tens of thousands of dollars.

Compare both the new payment and total long-term interest before accepting an extended amortization.

What must a federally regulated lender disclose before you sign?

When dealing with a federally regulated financial institution, the lender must provide key mortgage information clearly and in writing.

This includes information about:

• the interest rate;
• payment terms;
• cost of borrowing;
• prepayment privileges;
• prepayment penalties and how they are calculated;
• mortgage default insurance charges where applicable;
• other charges, including possible discharge fees.

Read the disclosure documents before signing and ask questions about any term that is unclear.

Is switching lenders the same as refinancing?

Not necessarily. A renewal or straight switch generally maintains or shortens the remaining amortization without increasing the principal balance.

If you increase the mortgage amount to take equity out of the property or lengthen the amortization, the transaction may instead be treated as a refinance. That can change qualification, insurance and cost considerations.

This guide focuses on renewal and switching lenders rather than borrowing additional equity from your home.

Common mortgage renewal mistakes to avoid

• Waiting for the renewal letter before comparing mortgage rates.
• Accepting the first renewal rate without negotiating.
• Comparing only interest rates and ignoring prepayment privileges, penalties and fees.
• Assuming automatic renewal will provide the best available deal.
• Waiting until the final days before maturity to apply with another lender.
• Assuming a stress-test exemption means the new lender must approve the application.
• Increasing the loan or amortization and assuming straight-switch qualification rules still apply unchanged.
• Failing to tell the new lender that the existing mortgage is insured.
• Ignoring discharge, appraisal, legal, registration or assignment costs when calculating potential savings.
• Not checking whether the mortgage has a collateral charge and whether other debts are secured by it.
• Breaking a mortgage before maturity without first calculating the prepayment penalty.
• Extending amortization to reduce the monthly payment without comparing the additional lifetime interest cost.