Your mortgage term in Ontario is coming up for renewal. This happens to almost every homeowner eventually. It’s not the end of your mortgage, just the end of the specific deal – rate, terms, timeframe – you currently have. Think of it like a contract ending; now you need a new one.
This naturally raises questions, especially when interest rates are fluctuating. It’s a significant decision point that impacts your finances for years to come. So, what should you do?
Let’s review ten common questions. The goal is simple: provide clear information so you can understand your options and make the best choice for you.
1. How do mortgage renewals generally work?
First, a quick distinction: your amortization is the total time to pay off the loan (e.g., 25 years), while the term is the shorter contract length (e.g., 5 years) for your current rate and conditions.
When the term ends, you still owe money unless you’re at the very end of your amortization. You need to either pay the remaining balance off entirely or sign up for a new term to continue payments. This cycle repeats until the mortgage is fully paid.
Your lender must send you a renewal statement at least 21 days before your term ends (if federally regulated). This important document outlines:
- Your remaining balance.
- Their offered interest rate for the new term (guaranteed not to increase before renewal).
- Payment frequency and new term length.
- Any associated fees.
Receiving this statement means you need to act. You can accept their offer, try negotiating, switch lenders, or pay off the loan. Ignoring it is usually unwise.
While 21 days is the legal minimum notice, it’s not enough time to make a well-informed decision. Most experts recommend starting the process 3 to 6 months before your term ends. This gives you adequate time to review your finances, research rates, negotiate, and handle paperwork if you decide to switch lenders. Think of the 21-day notice as the final deadline, not your starting point.
2. How can I renew my mortgage?
You have two main paths: stick with your current lender or move to a new one.
Choice 1: Stay with Your Current Lender
This often feels simplest. If you’re happy with your lender, you might just sign their renewal offer. A key benefit is often avoiding the need to re-qualify fully (prove income, debts again) if you’re not borrowing more.
However, simple isn’t always best. The initial rate offered might not be their most competitive one. Lenders know switching is a hassle and might offer a higher rate assuming you won’t shop around. You should negotiate. Research competitor rates and ask your lender to match them or offer their best possible rate. Loyalty and being informed can give you bargaining power.
Choice 2: Switch to a New Lender
You can take your mortgage to another bank, credit union, or mortgage company. People often do this for a lower interest rate or better features (like more flexible prepayment options). Switching at renewal avoids the penalties you’d face for breaking your mortgage mid-term.
Switching involves more effort; it’s like applying for a new mortgage (minus the down payment). You’ll need to:
- Shop around for the best offers.
- Apply with the new lender, providing documents (income proof, property tax info, current mortgage statement).
- Get assessed: The new lender reviews your finances and credit. The “stress test” might apply, especially for uninsured mortgages or if you’re changing loan terms, ensuring you qualify at a higher rate.
- Coordinate payout: The new lender arranges to pay off the old lender.
- Sign legal documents: Usually with a lawyer, finalizing the switch and paying fees.
Switching typically involves costs:
- Discharge fee from the old lender (~$0-$400).
- Appraisal fee if the new lender requires one (~$300-$500+).
- Legal fees for document processing.
- Registration fees.
Sometimes, the new lender might offer to cover some or all of these costs to win your business. Always ask about potential fees and any available assistance.
What about a mortgage broker?
If comparing lenders and negotiating feels daunting, a mortgage broker like The Mortgage Centre can help. They work with multiple lenders, shop for competitive rates and terms on your behalf, and handle much of the application process.
3. What happens if your mortgage renewal is denied?
It’s uncommon, but a lender can refuse to renew your mortgage. They must notify you in writing at least 21 days before the term ends (if federally regulated).
Denial usually happens if the lender perceives a significant increase in risk, such as:
- Major negative change in your finances (job loss, large new debts).
- Significant drop in your credit score (missed payments, bankruptcy, consumer proposal).
- Poor property condition affecting its value.
- Changes in the lender’s own policies or risk appetite.
If denied, you must find another lender before the maturity date. If you can’t, the full remaining balance becomes due immediately. Failure to pay leads to default, resulting in legal action, damaged credit, and potentially foreclosure (forced sale of your home).
If denied, act fast:
- Apply immediately to other banks and credit unions.
- Contact a mortgage broker, especially one experienced with complex situations.
- Explore ‘alternative’ or ‘private’ lenders (expect much higher rates/fees).
- Consider selling the property proactively if financing isn’t available.
If you anticipate renewal issues, talk to your lender months ahead of time.
4. Do banks check credit cards for mortgage renewals?
They don’t usually examine individual credit card statements, but your credit card habits significantly impact what they do check.
- Switching Lenders: Expect a full credit check.
- Staying with Current Lender: They might check, especially if you request changes or based on their policy, but sometimes they skip it for simple renewals. Assume they might.
Your credit report, which they review, is heavily influenced by credit cards:
- Credit Score: Impacted by payment history and how much of your available credit you use (utilization). High balances hurt your score.
- Debt Ratios: Lenders calculate your total monthly debt payments (including minimums on cards, loans, lines of credit) relative to your income. High credit card debt increases this ratio, making qualification harder, especially if switching or rates are up.
Bottom line: How you manage credit cards directly affects your credit score and debt load, which are critical factors in mortgage renewal approvals and the rate you’re offered.
5. Can a bank deny my mortgage renewal in Ontario, Canada?
Yes, absolutely. A lender in Ontario can refuse to renew your mortgage. Renewal is not automatic or guaranteed.
Lenders assess your current risk profile, not just your past payment history. Significant changes in your finances, creditworthiness, or the property’s condition, or even shifts in the lender’s own policies, can lead to denial.
Remember, federally regulated lenders must provide 21 days’ written notice if they intend not to renew. This underscores the importance of maintaining good financial health and keeping your property in reasonable condition throughout the life of your mortgage.
6. What happens if you don’t renew your mortgage?
If your term ends and you haven’t signed a renewal, switched lenders, or paid off the balance, one of two things typically occurs (check your original mortgage documents and renewal statement):
Possibility 1: It Renews Automatically
Many mortgages include a clause for automatic renewal if you take no action. The renewal statement must specify if this applies.
While convenient, auto-renewal is often a poor financial choice:
- High Rate: Usually renews at the lender’s posted rate (often higher than negotiated rates) or into a costly open term.
- Unsuitable Terms: The default term length or features might not fit your needs.
- Missed Opportunity: You lose the chance to negotiate, shop around, or make penalty-free lump-sum payments on the maturity date.
Auto-renewal avoids immediate default but likely costs you more than necessary. Doing nothing is an expensive decision.
Possibility 2: It Goes into Default
If your mortgage doesn’t auto-renew, or if the lender denied renewal, and the maturity date passes without action, the situation is serious. The entire remaining balance becomes due immediately. If you cannot pay, the mortgage is in default, leading to legal action, severe credit damage, and potential foreclosure.
Either way, you must address the renewal before the deadline. Don’t let it slide.
7. Can you pay off your mortgage at renewal without penalty?
Yes. The maturity date (the day your term officially ends) is a special opportunity. On this specific date, you can pay off the entire remaining mortgage balance, or make a significant lump-sum payment, without incurring prepayment penalties.
Prepayment penalties usually apply to “closed” mortgages when you pay more than allowed during the term, compensating the lender for breaking the contract early. On the maturity date, however, the contract has naturally concluded. For that day, your mortgage essentially becomes “open,” allowing full repayment freedom.
If you plan to pay it off:
- Inform your lender in advance.
- Arrange to have the funds available on the maturity date.
- Engage a lawyer to handle the mortgage discharge (removing the lender’s claim from your property title), which involves a fee.
You can also use this penalty-free opportunity to make a large partial payment before renewing for the next term. This reduces your principal, leading to lower future payments or a shorter remaining amortization.
While paying off the mortgage is a great milestone, consider if it’s the best use of those funds compared to investing or clearing higher-interest debt. But from a purely contractual standpoint, renewal day is the prime time for large, penalty-free principal payments.
8. How early can you renew your mortgage?
Most lenders allow you to renew your mortgage somewhat before the official maturity date, during an “early renewal period,” often without prepayment penalties.
This window typically opens 90 to 180 days (3 to 6 months) before your term ends, but policies vary by lender.
Why renew early?
- Rising Rates: Lock in a rate now if you expect rates to increase.
- Falling Rates: Start benefiting from a lower rate sooner (sometimes).
- Lender Retention: Lenders offer it to keep your business.
Downsides?
- Rates Might Fall Further: Locking in early means missing potential future rate drops.
- Initial Offer Might Not Be Best: The first early offer may not be the lowest rate they’d give if you negotiated or waited.
Renewing early is essentially a bet on future interest rate movements. Also ask if the new rate takes effect immediately or only on the original maturity date. Some lenders offer a “blend and extend” option, mixing your old and a current rate into a new term, sometimes penalty-free.
9. Will my mortgage automatically renew?
As mentioned in Question 6, yes, it might automatically renew if you do nothing. Your lender must state in the renewal notice if this will happen.
Do not rely on auto-renewal. It’s designed for the lender’s convenience, not your benefit. The rates are typically high, the terms may be unsuitable, and you forfeit your chance to negotiate, compare offers, or make strategic choices like lump-sum payments. It avoids default but usually costs you extra money. Be proactive: review the offer, compare rates, and make an active decision.
10. Does consumer proposal affect mortgage renewal?
While specific lender policies vary, a consumer proposal significantly impacts your credit and perceived risk.
- Staying with Current Lender: Renewal might be possible, especially if mortgage payments were perfect throughout the proposal and your income is stable. However, expect the lender to scrutinize your file closely. The proposal will likely result in a higher offered interest rate or less flexible terms. Early communication with your lender is crucial.
- Switching Lenders: Getting approved by a new mainstream lender (bank/credit union) during or shortly after a consumer proposal is very difficult due to standard credit requirements.
- Alternative Lenders: You’ll likely need to turn to ‘B’ lenders or private lenders. These institutions specialize in higher-risk files but charge significantly higher interest rates and fees. A proposal often necessitates using these more expensive options, at least temporarily.
If renewal is approaching after a consumer proposal:
- Talk to your current lender months in advance.
- Consult a mortgage broker experienced with challenging credit situations.
- Be prepared for higher rates and fewer options.
- Focus on rebuilding your credit history.
Wrapping Up
Mortgage renewal in Ontario is a significant event, but understanding the process makes it manageable. Key takeaways:
- Start Early: Give yourself 3-6 months before the term ends.
- Know Your Options: Stay and negotiate, or switch and compare.
- Compare & Negotiate: Don’t accept the first offer without checking the market.
- Be Aware of Costs: Especially if switching lenders.
- Avoid Auto-Renewal: It’s usually expensive; make an active choice.
- Use Renewal Day: Make penalty-free lump-sum payments if desired.
- Get Help: Brokers can assist, particularly in complex situations.
Being informed and proactive transforms renewal from a chore into an opportunity to ensure your mortgage aligns with your current needs and potentially save money. If your renewal is on the horizon, now is the time to explore your options.
