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Renew or Refinance: What’s the Best Move for Your Mortgage?

As millions of Canadians approach the end of their mortgage term, many are focused on one thing: Getting the best rate possible. But while renewal might seem like the obvious choice, refinancing could open up opportunities you haven’t considered—ones that could significantly impact your financial future.


What’s the Difference Between Renewing and Refinancing?

Mortgage Renewal

When your mortgage term (often 3 or 5 years) comes to an end, you need to renew it to keep your loan active. At renewal:

  • Your loan amount and amortization period stay the same

  • You can renegotiate your interest rate

  • You can’t borrow more money or change the structure of your loan

Example: Let’s say you bought a home in June 2020 with a $400,000 mortgage at 1.70%. After 5 years, your remaining balance would be about $332,939.71 (assuming no extra payments). Now, you’d renew at the new rate, based on that balance and the time left on your amortization.



Mortgage Refinance

Refinancing gives you more flexibility. You can:

  • Change your loan amount

  • Access equity from your home

  • Extend your amortization period

  • Consolidate debt or free up funds for things like renovations or investments

Example: If your home’s value has gone up since you bought it, refinancing could let you borrow against that equity. That cash could help fund a kitchen upgrade, start a small business, or pay off high-interest debt.



What Happens When Rates Rise?

If you locked in a 1.70% fixed rate five years ago, today’s rates—often above 4.50%—can feel like a shock. Simply renewing at that higher rate could increase your monthly payments significantly.

Refinancing, on the other hand, can help soften that blow by:

  • Stretching out your amortization

  • Accessing equity to manage cash flow

  • Giving you options to rebalance your financial goals



Renew vs. Refinance: A Side-by-Side Look

Here’s how the two options compare for a $400,000 mortgage after a 5-year term:

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

Note: Rates shown are for example purposes only and are subject to change. Not a mortgage offer. OAC & E&O.

Even though the refinance rate is higher, spreading your loan over a longer period can lower your monthly payments and increase cash flow.



Mortgage Terms Made Simple

  • Amortization Period: The total time you have to pay off your mortgage. Shorter = higher payments, less interest. Longer = lower payments, more interest.

  • Term: The length of your current agreement with your lender—typically 1 to 5 years. At the end of the term, you can renew or refinance.

  • Equity: The difference between your home’s value and what you still owe. For example, if your home is worth $600,000 and your mortgage balance is $400,000, you have $200,000 in equity. Refinancing lets you access some of this cash.

  • Payment Shock: When your new rate is much higher than your old one, your payments can jump unexpectedly—putting stress on your monthly budget.



Final Thoughts

Renewing your mortgage is a great time to review your entire financial strategy—not just lock in a rate. Think about what you really need:

  • Extra cash for renovations or investments?

  • Lower monthly payments to ease your budget?

  • A chance to consolidate higher-interest debts?

Refinancing could give you the flexibility you’re looking for.



Not Sure What’s Right for You? Let’s Chat!

We’re here to help you weigh your options, find the best rates, and create a mortgage strategy that fits your goals. Reach out anytime—let’s explore what’s possible.


 
 
 

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