Should You Renew or Refinance Your Mortgage?
If your mortgage term is coming to an end (and you’re one of millions of Canadians in that boat), you’re probably laser-focused on locking in a great rate. But while most folks automatically think about renewing, there’s another option that could seriously shift your financial game: refinancing. Let’s break it down in a way that actually makes sense—and helps you decide which move works best for you.
Renewal vs. Refinance: What’s the Real Difference?
Renewal – Same Loan, New Rate
When your mortgage term wraps up—typically after 5 years—you’ll need to renew to keep things rolling. This doesn’t mean starting from scratch. Your loan balance and amortization (a fancy word for “the total time to pay it off”) stay the same. You can renegotiate your interest rate, but you can’t borrow more money or tweak the original loan amount.
Example:
Let’s say you bought a place in June 2020 with a $400,000 mortgage at 1.70%. Fast forward 5 years, and your balance is around $332,939.71 (assuming you didn’t throw in any extra payments). Time to renew at a new rate for the remaining balance. No bells or whistles—just a new rate and a fresh term.
Refinance – Flex Your Financial Options
Refinancing? That’s a different story. It’s like hitting the reset button on your mortgage, but with perks. You can change the loan amount, extend your amortization, and access your home’s equity (aka the part of your house you actually own). This opens up a lot of doors—whether you want to lower monthly payments, pay off debt, fund a reno, or invest elsewhere.
Example:
If your home has shot up in value, refinancing could let you tap into that increased equity. That could mean cash for a kitchen upgrade, starting a side hustle, or wiping out high-interest credit card debt.
Rate Hikes and Payment Shock—Let’s Talk About It
Remember those dreamy 1.70% rates from a few years back? Today, you’re likely looking at 3.99%+. Ouch. Just renewing at today’s rates could lead to payment shock—a sudden spike in monthly payments that hits your budget hard. Refinancing might offer some relief: stretch out your amortization or tap into equity to soften the blow.
Quick Comparison (Because Numbers Matter)
| Scenario | Original Mortgage | Renewal | Refinance |
|---|---|---|---|
| Loan Amount | $400,000 | $332,939.71 | $332,939.71 |
| Amortization | 25 years | 20 years left | Extended to 30 years |
| Interest Rate* | 1.70% | 4.19% | 4.54% |
| Monthly Payment | $1,636.46 | $2,044.65 | $1,686.49 |
*For illustration only. Not an offer or approval. OAC, E&O.
👉 Heads up: Even with a higher rate, refinancing can help lower your monthly payment if you stretch the amortization. That flexibility might be worth it depending on your goals.
Decoding the Jargon (Without the Headache)
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Amortization Period: How long you’ve got to pay off your entire mortgage. Longer period = lower monthly payments, but more interest over time.
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Term: The length of your current deal with the lender—usually 1–5 years. When it ends, you renew or refinance. The amortization stays the same, but the term lets you renegotiate your rate.
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Equity: The part of your home that’s truly yours. Example: Home’s worth $600K, you owe $400K? You’ve got $200K in equity to potentially access.
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Payment Shock: That unpleasant surprise when your mortgage renewal comes with much higher payments due to rising interest rates.
The Bottom Line
When your mortgage term is up, don’t just chase the best rate—look at the bigger picture. Want to borrow more? Lower monthly payments? Free up cash? A refinance might give you the wiggle room you need. Understanding your options now could save you serious money—and stress—later.