Should You Renew or Refinance Your Mortgage? Here’s What to Consider
Millions of Canadians are approaching the end of their mortgage term, faced with an important decision: should they renew their mortgage as-is or explore refinancing for better financial flexibility? With interest rates fluctuating and home values rising, choosing the right option could make a significant difference in your financial future.
What’s the Difference Between Renewing and Refinancing?
Mortgage Renewal
Renewing your mortgage is straightforward. When your term ends—typically after 5 years—you renegotiate your interest rate and term with your current lender. However, you can’t increase your loan amount or change the amortization period.
Example:
Let’s say you purchased a home in June 2020 with a $400,000 mortgage at a 1.70% interest rate. After five years of regular payments, your balance would be about $332,939.71. When your term expires, you’ll need to renew at current market rates.
Pros of Renewing:
✔ Simple process with minimal paperwork
✔ No additional borrowing, keeping your debt stable
✔ Opportunity to negotiate a competitive rate with your lender
Cons of Renewing:
✖ Limited flexibility—no ability to access home equity
✖ Could lead to “payment shock” if rates have risen significantly
Mortgage Refinancing
Refinancing lets you make significant changes to your mortgage. You can:
Increase your loan amount to access home equity
Extend the amortization period to lower monthly payments
Consolidate high-interest debt into your mortgage
Example:
If your home’s value has increased since you purchased it, refinancing could allow you to tap into that equity. You might use those funds for home renovations, investments, or paying off high-interest debt.
Pros of Refinancing:
✔ Potential to lower monthly payments by extending amortization
✔ Ability to access cash for home improvements or debt repayment
✔ More flexibility to adapt to changing financial needs
Cons of Refinancing:
✖ May involve prepayment penalties if done before term-end
✖ Higher overall interest costs if amortization is extended
How Rising Interest Rates Impact Your Mortgage Decision
If you secured a mortgage at 1.70% five years ago, today’s rates—often above 4.50%—may feel like a financial shock. Simply renewing means accepting a significantly higher payment. However, refinancing could allow you to restructure your mortgage to manage rising costs.
A Side-by-Side Comparison
Here’s how renewal compares to refinancing a $400,000 mortgage:
*Rates are for illustrative purposes only. This is not a commitment to lend, pre-approval or approval. OAC, E&O. **Rates are for illustrative purposes only. OAC.
While the refinance scenario has a higher interest rate, the longer amortization reduces the immediate financial strain compared to simply renewing at a higher rate.
Key Mortgage Terms Explained
Amortization Period
The total time it takes to pay off your mortgage in full. Shorter periods mean higher payments but lower overall interest. Extending your amortization reduces monthly payments but increases long-term interest costs.
Term
The length of your current mortgage agreement—often 1 to 5 years. At the end of each term, you must renew or refinance at current market rates.
Home Equity
Your home equity is the difference between your home’s market value and your remaining mortgage balance:
Home Value – Mortgage Balance = Equity
For example, if your home is worth $600,000 and you still owe $400,000, your equity is $200,000.
How Much Can You Access?
In most cases, you can borrow up to 80% of your home’s value through refinancing.
That means, for a $600,000 home, you could access up to $480,000 in total mortgage financing—but since you still owe $400,000, that leaves $80,000 available.
If you're building a secondary suite, you may qualify for up to 90% of your home’s value instead.
Payment Shock
A sudden increase in your mortgage payments due to a higher interest rate at renewal. Refinancing can help manage this by adjusting your loan structure.
Making the Right Choice
When deciding between renewal and refinancing, consider:
✅ Do you need to reduce your monthly payments?
✅ Are you looking to consolidate debt or access home equity?
✅ Are you prepared for higher rates if you simply renew?
Every financial situation is different. If you’re unsure which option is best for you, let’s connect. I can help you navigate your mortgage renewal or refinancing options and find the best solution for your financial future.
Contact me today to explore your options!
📞 Call us at (204) 997-5021
📩 Email: michaelcabral@invis.ca
