How does mortgage renewal work in Canada?
**A mortgage renewal happens when your current mortgage term expires and you negotiate new terms for the next term.** In Canada, the most common mortgage term is 5 years, meaning most homeowners go through this process four to five times over a typical 25-year amortization.
Your lender is required to send you a renewal statement at least 21 days before your maturity date. However, most lenders send a renewal offer 120 days (4 months) in advance. You are not obligated to accept your lender's first offer. In fact, accepting the first renewal offer is one of the most common and costly mistakes Canadian homeowners make.
At renewal, your remaining balance becomes the new principal, and your remaining amortization period determines the payment schedule. You can choose a new term length (1 to 10 years), switch between fixed and variable rates, and adjust your payment frequency. You can also switch to a different lender entirely.
The mortgage renewal calculator above compares two scenarios: staying with your current lender at their offered rate, or switching to a new lender at a lower rate. It accounts for the switch costs and calculates the break-even point where switching becomes worthwhile.
Should you stay with your current lender or switch?
**Switching lenders at renewal can save thousands of dollars, but you need to weigh the savings against the switch costs.** The key factors are the rate difference, your remaining balance, your remaining amortization, and the total cost to switch.
If you stay with your current lender, the process is simple. You sign the renewal agreement and your payments continue with the new rate. There are no legal fees, no appraisal, and no stress test re-qualification. Your lender may offer you a slightly higher rate than the market, counting on inertia to keep you.
If you switch lenders, you need to go through an approval process with the new lender, pay legal fees ($500-$1,000), potentially an appraisal fee ($300-$500), and a discharge fee from your current lender ($200-$400). Many new lenders offer a cash-back incentive or cover some of these costs to win your business.
**As a general rule, if the rate difference is 0.25% or more on a balance above $200,000 with 15+ years remaining, switching is almost always worth the costs.** Use the calculator above to see the exact numbers for your situation.
Does the stress test apply at mortgage renewal?
**If you renew with the same lender, you do not need to pass the stress test again.** This is a significant advantage for borrowers whose financial situation has changed (lower income, higher debt) since their original qualification.
As of November 21, 2024, OSFI eliminated the stress test requirement for straight switches between lenders at renewal. A straight switch means you are transferring the same mortgage amount with the same amortization. You cannot increase the loan amount or extend the amortization beyond the original schedule ([OSFI](https://www.osfi-bsif.gc.ca/en/supervision/financial-institutions/banks/minimum-qualifying-rate-uninsured-mortgages)).
This policy change removed a major barrier to switching lenders at renewal. Previously, borrowers who could not pass the stress test at a higher qualifying rate were effectively locked into their current lender, even if better rates were available elsewhere.
If you want to refinance (increase your mortgage amount or extend amortization), you must still pass the stress test at the qualifying rate: the greater of your contract rate + 2% or the 5.25% floor.
What is a blend-and-extend mortgage?
**A blend-and-extend lets you lock in a new rate before your term expires by blending your current rate with the new market rate, typically avoiding the prepayment penalty.** This option is only available with your current lender.
The blended rate is a weighted average: (current rate x remaining months + new rate x new term months) / total months. For example, if you have 2 years left at 5.0% and want to extend to a new 5-year term at 3.5%, the blended rate would be approximately (5.0% x 24 + 3.5% x 36) / 60 = 4.1%.
Blend-and-extend makes sense when rates have dropped significantly and you want to lock in savings immediately rather than waiting for your maturity date. However, be aware that the blended rate will always be higher than the current market rate because it includes your old, higher rate.
Some lenders may embed administrative fees or a premium into the blended rate rather than charging an explicit penalty. Always compare the total cost of a blend-and-extend against simply waiting for renewal or breaking the mortgage and paying the penalty.
How is the early renewal penalty calculated?
**If you renew before your maturity date by breaking your current mortgage, the penalty for a fixed-rate mortgage is the greater of three months' interest or the Interest Rate Differential (IRD) ([FCAC](https://www.canada.ca/en/financial-consumer-agency/services/mortgages/reduce-prepayment-penalties.html)).** For variable-rate mortgages, the penalty is typically three months' interest.
Three months' interest is straightforward: Balance x Annual Rate / 12 x 3. On a $350,000 balance at 5%, that is approximately $4,375. The IRD compares your contract rate to the lender's current rate for the remaining term and multiplies the difference by your balance and remaining months.
Major banks (TD, RBC, BMO, Scotiabank, CIBC) typically use their posted rates rather than actual discounted rates when calculating the IRD. This inflates the rate differential and results in a larger penalty, sometimes $10,000 to $20,000+. Monoline lenders usually use their actual rates, resulting in lower penalties.
If you are renewing at your maturity date (the end of your current term), there is no penalty. The early renewal penalty only applies if you break your mortgage before the term ends. This calculator includes an optional penalty field for borrowers considering early renewal.
How to negotiate a better renewal rate
**The single most effective negotiation tactic is getting a competing rate offer in writing before talking to your current lender.** Your bank's retention department has authority to match or beat competitor rates, but only if you demonstrate you are serious about switching.
Start by getting pre-approved with a mortgage broker or another lender 4-6 months before your renewal date. Brokers have access to wholesale rates from dozens of lenders, including monoline lenders like MCAP, First National, and RMG that often offer lower rates than the big banks.
When your current lender sends their renewal offer, do not sign it immediately. Call their retention department, tell them you have a better rate offer, and ask them to match it. Most lenders will negotiate, and you may save 0.25% to 0.50% or more off their initial offer.
If your lender will not match the best rate available, use the mortgage renewal calculator above to see whether the savings from switching justify the costs. In most cases with a rate difference of 0.25%+ on a balance over $200,000, switching is the better financial decision.
- ✓Get a competing rate offer in writing before contacting your lender
- ✓Start shopping 4-6 months before maturity to secure the best rate holds
- ✓Call the retention department, not the regular customer service line
- ✓Never sign the first renewal offer without negotiating
- ✓Compare the total cost including switch fees, not just the monthly payment
- ✓Consider a mortgage broker who can access wholesale rates from multiple lenders
Mortgage renewal timeline: what to do and when
**The ideal mortgage renewal process starts 120 days (4 months) before your maturity date.** Most lenders offer 120-day rate holds, so starting early lets you lock in a good rate while continuing to shop for better options.
| Timeline | Action |
|---|---|
| 120+ days before maturity | Start rate shopping. Contact a mortgage broker. Get pre-approvals. |
| 120 days before maturity | Secure a rate hold with your preferred lender. Continue comparing. |
| 90 days before maturity | Receive renewal offer from your current lender. Do NOT sign immediately. |
| 60-90 days before maturity | Negotiate with your current lender using competing offers. |
| 30-60 days before maturity | Make your decision. If switching, your new lender handles the transfer. |
| Maturity date | New rate takes effect. No penalty for switching at maturity. |
Worked example: stay vs switch at mortgage renewal
**Step 1: Enter your current balance.** You have a $350,000 mortgage balance after completing your first 5-year term.
**Step 2: Set remaining amortization.** You started with 25 years and completed 5, so you have 20 years remaining.
**Step 3: Enter the renewal rates.** Your current lender offers 4.50%. A mortgage broker quotes you 3.90% from a monoline lender.
**Step 4: Enter switch costs.** Legal fees: $800, appraisal: $400, discharge fee: $250. Total: $1,450. The new lender offers a $500 cash-back, reducing your effective cost to $950.
**Step 5: Review the comparison.** Staying: $2,193/month, $176,288 total interest, $526,288 total cost. Switching: $2,102/month, $154,461 total interest, $505,911 total cost (including switch costs).
**Step 6: Check the break-even.** Monthly savings: $91. With $950 in switch costs, the break-even is 11 months. After that, you save $91 every month for the remaining 19 years. Total savings: $20,377.
Frequently asked questions
How much does it cost to switch mortgage lenders at renewal in Canada?
**Typical switch costs range from $700 to $2,000, including legal fees ($500-$1,000), an appraisal fee ($300-$500 if required), and a discharge fee from your current lender ($200-$400).** Many new lenders offer a cash-back incentive of $500-$3,000 or cover legal costs to offset these expenses. At maturity (end of your term), there is no prepayment penalty for switching.
Do I need to pass the stress test to switch lenders at renewal?
**No, as of November 21, 2024, OSFI eliminated the stress test for straight switches at renewal.** A straight switch means transferring the same mortgage balance with the same amortization schedule. If you want to increase your mortgage amount or extend your amortization, you must still pass the stress test at the qualifying rate.
When should I start shopping for a new mortgage rate before renewal?
**Start 4-6 months before your maturity date.** Most lenders offer 120-day rate holds, which lets you lock in a rate while continuing to shop. If rates drop further, you can usually get the new lower rate. If rates rise, your held rate is protected. This gives you maximum leverage to negotiate with your current lender.
What is the penalty for early mortgage renewal in Canada?
**For fixed-rate mortgages, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD).** For variable-rate mortgages, the penalty is typically three months' interest. There is no penalty if you renew at your maturity date. The IRD penalty can be substantial ($10,000-$20,000+) at major banks because they use posted rates rather than discounted rates in the calculation.
What is a blend-and-extend mortgage?
**A blend-and-extend combines your current rate with a new market rate to create a weighted average (blended) rate, and extends your term.** This avoids the prepayment penalty but results in a rate higher than the current market rate. It makes sense when rates have dropped significantly and you want immediate savings without paying a penalty. Only available with your current lender.
Should I choose a fixed or variable rate at renewal?
**Fixed rates provide certainty and protection against rate increases. Variable rates are historically cheaper over time but carry more risk.** If the Bank of Canada is in a rate-cutting cycle, variable rates tend to perform well. If rates are expected to rise, a fixed rate locks in your current cost. Most Canadian borrowers choose 5-year fixed, but a 3-year fixed can be a good compromise if you expect rates to drop further.
Can my lender refuse to renew my mortgage?
**It is rare, but yes. A lender can decline to renew if you have a history of missed payments or if the property value has declined significantly.** In most cases, lenders want to keep your business and will offer renewal terms. If declined, you have options: switch to another lender, work with a mortgage broker, or consider a B-lender (alternative lender) that accepts higher-risk borrowers at a higher rate.
What happens if I do nothing at mortgage renewal?
**If you do not respond to your renewal offer, most lenders will automatically renew you into a comparable term at their posted rate, which is almost always higher than what you could negotiate.** Auto-renewal is convenient but expensive. Even 5 minutes of negotiation can save thousands of dollars over your next term.
Is the mortgage renewal calculator accurate for Canadian mortgages?
**Yes, this calculator uses Canadian semi-annual compounding as required by the Interest Act (RSC, 1985, c. I-15).** A 5% nominal rate in Canada produces a lower effective rate than in the US because of this compounding method. The calculator provides estimates based on the inputs you provide. Actual rates and costs depend on your credit profile, property, and lender.
How much can I save by switching lenders at mortgage renewal?
**On a $350,000 balance with 20 years remaining, a 0.50% rate difference saves approximately $91/month and $20,000+ over the remaining amortization.** Even a 0.25% difference saves roughly $10,000. The exact savings depend on your balance, remaining amortization, and the rate difference. Use the calculator above to see your specific numbers.