What is the difference between a mortgage renewal and a refinance?
What is the difference between a mortgage renewal and a refinance in Canada?
Short Answer: A mortgage renewal continues your existing mortgage with a new term and rate, while a refinance restructures your mortgage and may change the balance, amortization, payment, or lender.
Understanding Mortgage Renewals
In Canada, most mortgages come with terms of one to five years. When your term ends, you must renew. A renewal typically involves:
- Keeping the same mortgage balance
- Keeping the same amortization
- Choosing a new rate and term
At renewal, lenders often send rate offers with minimal explanation. While this may seem convenient, it leaves out critical information such as monthly payment changes or flexibility features.
Renewals work well when your financial situation is stable and your current structure still fits your needs.
Understanding Mortgage Refinancing
Refinancing allows you to change the structure of your mortgage. This can include:
- Extending or shortening the amortization
- Accessing equity
- Consolidating higher-interest debt
- Adjusting payments to improve cash flow
- Switching lenders with a new structure
Refinancing requires qualification and comes with legal and appraisal considerations. However, it can be a powerful planning tool when used intentionally.
Renewal vs Refinance: Key Differences
In Canada, a mortgage renewal and a mortgage refinance are often discussed together, but they are not the same decision and they address different financial needs.
A mortgage renewal happens at the end of your current term and continues your existing mortgage. You do not need to requalify, and your mortgage balance and remaining amortization usually stay the same. At renewal, the main choice is selecting a new rate and term length. This option is generally suitable when your income, expenses, and cash flow are stable, and your current mortgage structure still fits your financial situation.
A mortgage refinance involves restructuring your mortgage and requires full requalification. Refinancing may change your mortgage balance, amortization period, monthly payment, or lender. Canadian homeowners often refinance to improve cash flow, consolidate higher-interest debt, access home equity, or realign their mortgage with new financial priorities. While refinancing includes additional steps and costs, it offers significantly more flexibility than a standard renewal.
The key difference is that a renewal maintains your existing mortgage structure, while a refinance intentionally changes it. When borrowers are asked to choose between renewal options based only on rate, this distinction is often overlooked, which can lead to decisions that do not fully support long-term affordability or financial stability.
Why Rate-Only Renewal Offers Are Incomplete
A rate alone does not show:
- Your new monthly payment
- Total interest over the term
- Prepayment flexibility
- Penalties if plans change
Two mortgages with the same rate can have very different long-term costs. This is why we do not chase the lowest rate. We build the lowest cost of borrowing.
Common Scenarios Where Refinancing Is Considered
- Rising household expenses impacting cash flow
- High-interest debt accumulating
- Life changes such as parental leave or career shifts
- Desire to simplify multiple payments
These are not signs of failure. They are planning moments.
Professional Insight
Many borrowers assume refinancing is a last resort. In practice, it is often a proactive step to regain clarity and stability. The key is understanding when it aligns with your broader financial picture.
Support beats stress. Every time.
Related FAQs
Does refinancing hurt my credit?
There may be a temporary credit inquiry, but the impact is typically modest.
Can I refinance at renewal without penalty?
Yes, refinancing at renewal often avoids prepayment penalties.
Should I always refinance if payments feel high?
Not always. Sometimes a better renewal structure is enough.
If your renewal feels confusing or incomplete, a structured conversation can bring clarity. Book a call at www.mortgagecall.ca
or email [email protected]