Here’s how to make the most out of your mortgage renewal

After the initial process of getting a mortgage, you usually think about it very little, paying your monthly payments automatically and letting thoughts of interest rates and mortgage terms drift to the back of your mind. That is of course until it comes time to renew your mortgage. 

Here’s everything you need to know about a mortgage renewal and how to make the most of it.

What is a mortgage renewal?

If you’re new to the mortgage world, a mortgage renewal occurs at the end of your mortgage term (typically 5 years) where you agree on a new term and continue to pay off the principal balance of your mortgage. At this point you can switch your mortgage terms, for example from fixed to variable, and most importantly you can switch your lender with no penalty for breaking your mortgage early. Our mortgage search engine is one of the easiest ways to compare a renewal offer from your current lender against what’s on the market

With the most provocative message often driving the most engagement online, we’ve seen an increase in people warning of an imminent “doomsday” in the housing market which would see prices collapse from their current highs. This is already misleading as the market dropped some 10% across the board in 2022, and closer to 20% in regions with the highest prices like the Greater Toronto and Greater Vancouver areas. Following the Bank of Canada slowing their aggressive interest rate hikes, a lack of supply has already begun to catch up with the market, causing prices to rebound in some areas.

What happens if you don’t renew your mortgage? 

When it comes time to renew your mortgage, most mortgage lenders will notify you at least 3 months out that your renewal is coming up and if you take no action will auto-renew your mortgage with similar terms, but they probably won’t be in your favour.

Your mortgage lender will make every effort to reach out well in advance of your term ending. It’s in your best interest to shop for the best mortgage rates before your term expires or to at least discuss renewing with your existing lender. If you don’t respond and haven’t secured a mortgage elsewhere, your original lender may automatically renew you at a potentially higher rate.

Don’t make this common mortgage renewal mistake

So, do you have to stick with the same lender for your mortgage renewal? The short answer is no. Much like you have the flexibility to switch cell phone providers, internet providers, or meal kit subscriptions, you can also explore other mortgage options. In fact, taking the time to shop around for the best mortgage rates can potentially save you up to $3,000 per year in mortgage interest.

The most common mistake we see new mortgage holders make is not shopping around and simply sticking with whatever their current lender offers them during renewal. Take the time to shop around with a mortgage brokerage and you could save thousands of dollars in interest simply by switching to a different lender. Since many homeowners take the easy way out, mortgage lenders don’t have much incentive to offer great terms to existing borrowers. They aren’t going to fight for you to stick with them, so you should take the opportunity to potentially switch your mortgage to a different lender without worrying about any penalties.

Is it bad to renew with your current lender?

upside, if you're content with the terms and conditions offered by your current lender, you can simply sign on the dotted line and forget about it until the next renewal. You can bypass the process of re-qualifying, assuming you've been making timely mortgage payments, and your lender probably won't scrutinize your debt service ratio.

However, there's a significant downside to staying put with the same mortgage lender, as Ali Hussin, Head of Mortgage Advisory at Perch, points out. Lenders often have little incentive to provide competitive mortgage rates when they know most people will opt for the path of least resistance. This means their offers may not be as attractive, and they expect borrowers to accept them without question.

How to switch your mortgage during a renewal

So, how do you go about renewing your mortgage with a different lender? The process is relatively straightforward:

Shop Around: Start by exploring various mortgage offers to determine your eligibility. You can do this by contacting banks or mortgage brokers, gathering and submitting your information, and then waiting for responses. Alternatively, you can streamline the process by using Perch. With Perch, you can upload your documents to their secure online portal and receive multiple mortgage offers all at once. Plus, you can consult with a dedicated Perch mortgage advisor to weigh the pros and cons of each option.

Pre-Approval: Similar to when you first purchased your home, you'll go through the pre-approval process. With Perch, you can get pre-approved in as little as 20 minutes if you have all your documents ready.

Mortgage Application: Your mortgage advisor will review and submit your mortgage application.

Approval and Closure: Once your application meets all the conditions and is approved by the new lender, your new mortgage payments will commence.

With Perch, you can easily compare over 1,000 mortgage products with just a few clicks, simplifying a typically tedious and manual process.

When you sign-up to Perch you get instant access to our Pathfinder tool, which will show you mortgage options from dozens of lenders.