Mortgage renewal: a complete guide

What is mortgage renewal?

When you signed your mortgage papers you agreed to a term, which can range from a few months to several years. At the end of the term, you must renew the mortgage, choose a term, and negotiate interest rates. You will do this multiple times as you repay the mortgage loan, which can have an amortization period of 20–25 years.

As the renewal date approaches, your lender will contact you to discuss how you wish to proceed. Federally regulated institutions, such as banks, are required to provide you with a renewal statement no fewer than 21 days before the renewal date. You can also contact your lender at any time to discuss renewal.

Your lender will provide you with a paper or electronic version of your statement, depending on your preference.

The renewal statement includes the following information:

• the balance or remaining principal at the renewal date
• the interest rate
• the payment frequency
• the term
• any applicable charges or fees

The lender is also required to indicate that the interest rate offered won’t increase until the renewal date. ¹

Early renewal

In Canada, you can renew up to four to six months before the renewal date.² Early renewal can be a double-edged sword: you could lock into lower interest rates before an increase, but if you lock in too soon, you may miss out if interest rates improve.

If you’re not sure, don’t be afraid to ask for help. As a mortgage holder, you should have a dedicated representative at your bank or financial institution to help you with any questions you have about your mortgage, including renewals.

What happens if you don’t renew?

Because a mortgage loan is a sizeable debt, a lender won’t want to walk away from a client who misses the deadline. In most cases, they will automatically renew the mortgage with a six-month term at a higher interest rate.

Some lenders will place your mortgage on an open term, allowing you to pay off the balance without penalty. However, open terms carry higher interest rates than closed term mortgages.

In the worst-case scenario, your lender may consider you to be in default. In this situation, the lender may take legal action against you or invoke a sale to recover the outstanding balance.

As you can see, the consequences of not renewing your mortgage can be costly, and in the worst-case scenario, you could lose your home. So don’t throw away that letter you got from the bank!

The renewal process

When the time comes to renew your mortgage, you should schedule an appointment to discuss your loan with a representative from your financial institution. They will be able to guide you through what can be a complicated process. There are a lot of moving parts to a mortgage, so let’s take a closer look.

Term and interest rate

The term and the interest rate are closely related. The term is the period during which your mortgage loan is valid. Terms may range from just a few months to five years or longer. When the term expires, you must renew your mortgage unless you can pay the outstanding balance.

The term length impacts your interest rate and the type of interest you get. Mortgages can be fixed or variable rate.

A longer term, such as a five-year mortgage, carries a fixed rate, which is generally higher, with the trade-off being that your interest rate will not change during the term.

A variable-rate mortgage, on the other hand, has a shorter term and a lower rate, but unlike a fixed-rate mortgage, it can change, so there’s an added element of risk.

Some lenders offer a hybrid or combination interest rate. This kind of mortgage offers fixed and variable interest rates, meaning part of your mortgage has a fixed rate and the other has a variable rate.

The idea of a hybrid mortgage is to offer you partial protection if interest rates rise. The variable portion provides partial benefits if rates fall. Each portion may have different terms. For example, the variable rate portion could carry a two-year or three-year term, while the fixed rate portion could be four or five years.¹

Lenders use the interest rate to calculate the fees they charge you to borrow money. When you renew your mortgage term, your mortgage rate will most likely change, which will affect your mortgage payments.

The interest rate you are offered depends on several factors, but the most important are the term length and the current posted interest rate offered by your lender. The posted rate is based on the prime rate, which is the annual interest rate Canada’s major banks and financial institutions use to set interest rates, including variable-rate mortgages.³

Typically, your bank will offer you an interest rate of prime plus one percent. In July 2025, the prime rate in Canada was 4.95%.⁴ The prime rate is based on the Bank of Canada’s policy interest rate. This financial institution provides banking services on behalf of the federal government, including setting interest rates.

This is where your mortgage comes in: the Bank of Canada makes eight policy interest rate announcements per year, and these decisions can impact your mortgage at renewal time. The policy interest rate can vary depending on the country’s economic conditions. For example, in early 2024, the policy interest rate was 5.0%, but by the summer of 2025, it had dropped to 2.75%.⁵ So, if you are thinking about renewing your mortgage early, you may want to wait for the next Bank of Canada announcement before meeting with your lender.

Payment options

When you renew your mortgage, you can also renegotiate how you pay. You can change the payment frequency and amount, and even make additional payments.

How often you make payments impacts how quickly you can pay off your loan. Your mortgage payments are applied to the principal or the remaining balance of your mortgage. A common option is biweekly payments, but you can also pay monthly or weekly.

Your lender may also allow you to change the amount of your payments. There may be limits to how much you can increase your payments without incurring a penalty, so check your mortgage contract or ask your lender if you’re not sure. Increasing the payment frequency and amount helps you pay down the principal of your loan faster and reduces the total interest you pay over the life of the mortgage.

You can also make a lump-sum payment on top of your regular mortgage payments. A lump-sum mortgage payment is a one-time, substantial payment made towards your mortgage principal. Most mortgage lenders will impose limits on the amount. For example, it could be a total (like $15,000 or $25,000) or a percentage of the loan amount (like 15% or 25%). Your lender will also specify when you can make a lump-sum payment.

Amortization

This sounds like a scary word, but it simply means the number of years it takes to pay off your mortgage. Most mortgages have a 20–25-year amortization period. In Canada, the maximum amortization period is 30 years.

Why is the amortization period important? While a longer amortization period allows you to lower your payments, you will pay more interest over the course of the mortgage.

For example, a $300,000 mortgage with a 4% interest rate will cost you $135,057 in interest with a 20-year amortization. The same mortgage with a 25-year amortization would cost $173,418, a difference of almost $40,000.⁶

Switching lenders

Renewal time is the optimal moment to consider switching lenders. While you can switch lenders at any time, you won’t have to pay a prepayment penalty for switching at renewal. By shopping around, you may be able to get better rates and terms elsewhere or force your current lender to offer you a better deal to keep your business.

Savings

The biggest reason for switching is to save money. For example, an interest rate reduction from 5.0% to 4.75% on a $400,000 mortgage over a five-year term would save you $4,804.⁷ Lower monthly payments offer financial flexibility.

Requalification

The Office of the Superintendent of Financial Institutions (OFSI) does not require homeowners to pass the mortgage stress test when switching lenders, provided the mortgage amount and amortization period remain the same.

However, if you plan to increase your mortgage amount or extend the amortization period, you will need to requalify under the current lending rules, including the stress test. As of June 2025, the stress test benchmark rate was 5.25% or your contract rate plus 2%, whichever was higher.

Fees

While switching at renewal does not entail any prepayment penalties, there are some potential costs:

• Setup fees, such as discharge, registration, transfer or assignment fees from your previous lender
• Appraisal fees to determine your property’s value
• Administration fees

You may be able to offset some or all of these fees by asking your new lender whether they offer incentives or rebates — remember, they want your business.⁸

Commonly asked questions

Can I change the amortization period at renewal?

Yes. You can shorten or lengthen the amortization term at renewal.

Shortening the amortization period means you will pay off the mortgage earlier, but your payments will rise. Conversely, extending the amortization will reduce your payments. However, it will take you longer to pay off the mortgage, and you will pay more interest. For example, increasing your amortization period by five years will decrease the monthly payment on a $300,000 mortgage by about $140. But it increases the total interest by more than $100,000 over the life of the loan.⁹

Can I be denied a mortgage renewal?

Unfortunately, yes. A lender can decide not to renew a mortgage for the following reasons:

1. Missed payments. If you have a history of missed payments, this is one of the top reasons lenders decline to renew a mortgage.
2. Changes in employment. If you recently lost your job or your income has gone down, you could be denied your mortgage renewal.
3. Poor credit score. Lenders may check your credit score at renewal time if they have concerns about your ability to pay your mortgage. If you have a poor credit score, your renewal may be denied.
4. Debt servicing ratios. Lenders may use their own ratios to check how easily you can afford the new mortgage payments. Things like your income, total debt, mortgage payments, and housing costs can affect these ratios. If you fall below their debt servicing ratio limits, you could be denied the renewal.¹⁰

What is the difference between mortgage renewal and mortgage refinancing?

When you renew your existing mortgage at the end of its term, your lender updates the contract with a new interest rate or terms. You can also change your payment schedule or choose a different mortgage product, but you will continue with the same loan.

Mortgage refinancing, on the other hand, is an optional solution in which you break your current contract for an entirely new mortgage. You can refinance at any time, but remember there could be prepayment penalties, appraisal fees, and closing costs.

Refinancing allows homeowners to lower their monthly payments, consolidate debt, and access equity in their home to fund renovation projects, for example.¹¹

When is the best time to make a lump sum mortgage payment?

Your mortgage contract with your lender will stipulate the conditions for making a lump-sum payment. For example, if you are considering refinancing, it is advisable to make a lump-sum prepayment before you break your mortgage because some lenders restrict your ability to prepay if you’re close to the date you break your contract.

Additionally, consider waiting until the end of your term to make a lump-sum payment if your prepayment penalty will be significant. You can then make a lump-sum prepayment without penalty.¹²

Can you pay off your mortgage at renewal without penalty?

Yes. You can pay off your mortgage without penalty when your mortgage term expires. This is because your mortgage effectively becomes open.

Do banks check credit for mortgage renewal?

Banks may check credit at renewal, especially when a homeowner switches lenders or changes the terms of the loan.

What documents are required for mortgage renewal?

This depends on whether you are continuing with your current lender or switching. In most cases, if you are renewing with your current lender, you just need to sign and return the mortgage renewal statement or offer to confirm you accept the new terms, rates and payment options.

If you are switching, the process is a little more complicated. Remember, when you switch lenders, you are effectively applying for a new mortgage. You may have to provide or complete in the following documents:

• Mortgage application: a new mortgage application for the new lender.
• Recent mortgage statement
• Proof of income: recent pay stubs or your notice of assessment from Revenue Canada.
• Property tax statement: a recent copy of your property tax bill.
• Home/condo insurance: proof of current home or condo insurance coverage.
• Void cheque: a void cheque to set up payments with the new lender.
• Government-issued ID: proof of identification.

Sources

1. Government of Canada. “Renewing Your Mortgage.” canada.ca, www.canada.ca/en/financial-consumer-agency/services/mortgages/renew-mortgage.html. Accessed 21 July 2025.
2. Jarvis, Clay. “How Mortgage Renewal Works in Canada.” nerdwallet.com, 25 April 2025, www.nerdwallet.com/ca/p/article/mortgages/how-mortgage-renewal-works.
3. Government of Canada. “Interest on Mortgages.” canada.ca, www.canada.ca/en/financial-consumer-agency/services/mortgages/interest-on-mortgages.html. Accessed 21 July 2025.
4. Ratehub. “Prime Rate in Canada.” ratehub.ca, www.ratehub.ca/prime-rate. Accessed 25 July 2025.
5. Bank of Canada. “Policy Interest Rate.” bankofcanada.ca, www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/. Accessed on 25 July 2025.
6. Government of Canada. “Mortgage Terms and Amortization.” canada.ca, www.canada.ca/en/financial-consumer-agency/services/mortgages/mortgage-terms-amortization.html. Accessed 25 July 2025.
7. True North Mortgage. “Compare and Save Calculator” truenorthmortgage.ca, www.truenorthmortgage.ca/tools/savings-calculator. Accessed 30 October 2025.
8. Bates, Michelle. “Want to Switch Lenders at Renewal? Here’s What You Need to Know” lowestrates.ca, www.lowestrates.ca/blog/reports/want-switch-lenders-renewal-heres-what-you-need-know. Accessed 11 June 2025.
9. McCormack, Caitlin. “Should You Extend Your Amortization Period?” rates.ca, 26 May 2023, rates.ca/resources/should-you-extend-your-amortization-period.
10. Julia Hicks. Fairstone. “Can My Mortgage Renewal be Denied (and Tips on What to Do if This Happens)?” fairstone.ca, 21 March 2023, www.fairstone.ca/en/learn/finance-101/can-my-mortgage-renewal-be-denied.
11. Your Equity Mortgage. “Mortgage Renewal vs Refinance: Pros and Cons Explained” yourequity.ca, 16 December 2024, yourequity.ca/blog/mortgage-renewal-vs-refinance/.
12. Government of Canada. “Mortgage Fees: Prepayment Penalties” canada.ca, www.canada.ca/en/financial-consumer-agency/services/mortgages/reduce-prepayment-penalties.html. Accessed 4 September 2025.

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