4 tips for mortgage renewals in 2024

Will mortgage rates increase in 2024? It’s possible. While there’s no crystal ball to predict mortgage rates accurately, today’s borrowing environment is completely different from a few years ago when current mortgage holders qualified for their existing home loans. Given the reduced inflationary pressures, experts are predicting stable mortgage rates for fixed and variable-rate mortgages, with some anticipation of variable rates declining slightly by mid-year, while fixed rates will follow the slow rise of bond yields.

In general, interest rate fluctuations don’t impact fixed-rate mortgage holders. However, borrowers with variable-rate mortgages should be mindful of the Bank of Canada's target rate trends. To help, here are four tips for borrowers planning to renew their mortgage in 2024.

Tip #1 — Start early and shop around

A mortgage renewal is the perfect opportunity to align homeownership with future financial goals and current budget constraints. So, preparing for a mortgage renewal a few weeks or even a few months before your mortgage contract ends is best.

Start with a call to your current lender and ask what you can expect in a renewal offer. Then, start to examine what the competition can offer.

Whether you select a variable or fixed-rate mortgage, you can find a mortgage contract that fits your finance and money goals by comparing payment frequency, loan terms, and mortgage rates.

“It takes less effort to renew with your current lender,” explains Jesse Abrams, founder and CEO of Homewise, a national digital homeownership platform. “But seeing what other lenders offer could save you a lot of money.”

For example, on a $500,000 mortgage, a 50 basis point increase in the mortgage rate could cost you approximately $1,675 extra per year (assuming a 20-year amortization).

As Abrams points out: “An hour of your time can save you thousands, so it’s worth it.”

One way to shop the market is to work with an independent mortgage broker. Not only does a broker work with multiple lenders to find you a competitive rate, but this mortgage professional can be especially helpful in navigating recent policy changes, like the removal of the stress test for renewals with new lenders. Brokers can provide insight into how these changes affect your renewal options and assist in identifying competitive rates and favorable terms across various lenders. As borrower advocates, independent brokers can guide you to mortgage solutions that match both your budget and your lifestyle needs.

Tip #2 — Know when a good mortgage rate is not enough

To find the best mortgage renewal contract, you need to be clear about what’s changed and what could change.

“Interest rates are likely higher than when you first bought your home,” explains Carissa Lucreziano, vice president of Financial and Investment Advice at CIBC. “When looking to renew your mortgage, it’s important to take a step back and look at your ambitions over the next five years.”

Everyone wants the best rate with some assurances, explains Abrams, but ignoring life circumstances can result in missed savings or higher fees.

Do you plan to switch jobs? Move neighbourhoods? Start a family or create a multi-generation home? All these life events will impact your living arrangements. To avoid high fees associated with breaking a mortgage, you must consider pre-payment privileges and flexibility, not just the best rate.

For instance, if you predict that you may end up moving to a new property before the end of a fixed term, it may be better to pick a mortgage with more flexibility. For instance, a shorter loan term, a variable-rate mortgage, or a mortgage that offers portability — where you can move the mortgage to a new property — all offer greater flexibility while avoiding potentially high fees associated with breaking a mortgage. “This is where an independent mortgage broker who works with multiple lenders can really help,” explains Abrams.

Given the increasing trend toward flexible financial planning, some lenders now offer more adaptable mortgage products tailored to changing lifestyles. Options like mortgage portability allow you to transfer your mortgage if you relocate, while flexible payment terms can accommodate unexpected changes in income or expenses. Considering these products at renewal could offer you greater freedom to adjust your mortgage without facing prohibitive penalties.

Tip #3 — Opt for a new amortization

With the cost of living rising, extending your mortgage amortization at renewal can be a way to manage monthly costs in the short term — making your mortgage loan more affordable, at least in the short term. While this reduces immediate payments, it’s important to understand that a longer amortization will increase the overall interest you pay. Re-amortizing can be risky as it increases your overall interest costs on the loan. Still, when used strategically, re-amortizing can help you manage your current housing costs and keep you on track to meet your financial goals.

Think of this as a temporary measure, ideal for those facing short-term financial strain but who still want to prioritize long-term financial goals.

Tip #4 — Skip the mortgage stress test

Until recently, any borrower renewing with a new lender would have to requalify using the mortgage stress test. But a federal government policy change that took effect in late 2023 meant that borrowers renewing with a new lender can now skip the mortgage stress test. This change means greater competition among lenders, enabling borrowers to explore alternative options with potentially lower rates and better terms without worrying about requalifying using the more stringent stress test requirements. For those facing higher renewal rates, this policy shift offers a timely advantage, especially if you’re considering switching to a lender offering more flexible conditions or lower costs.

For more clarification, be sure to ask your mortgage broker.

What does it mean to renew a mortgage?

Most people purchase property in Canada using a mortgage, and, in the vast majority of cases, this loan is repaid over a specific period of time (known as amortization). However, most mortgage contracts are negotiated for set terms — usually between one and five years. At the end of the contract, the homeowner must either repay the entire mortgage loan or negotiate a new mortgage contract. The process of negotiating another mortgage contract is known as a mortgage renewal.

Amortization vs mortgage term

The total time you commit to repaying a mortgage loan is known as the amortization period. Longer amortization periods result in lower monthly payments and higher interest costs.

A mortgage term is the period of time you are contractually obligated to repay your mortgage to a specific lender. The most common mortgage term in Canada is five years.

Lenders compete to get borrower business by offering better rates or more favourable options. Lenders use amortization to help calculate the monthly payment based on the mortgage term and contract rate.

How much home can you afford?

Whether you're hunting for a new home or looking to refinance your mortgage, knowing how much your new loan might cost you is critical. Use our handy mortgage calculator to help you understand what your payments could look like.

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Do mortgages automatically renew?

Yes and no. Some lenders automatically renew your mortgage even if you don’t respond to the renewal offer letter. However, this automatic renewal should be clearly stated in this offer letter.

While automatic renewal can alleviate stress, the renewal rates and terms may not be the same as your original loan contract and could be higher than what competitors might offer. To avoid higher costs, shorter loan terms and unfavourable conditions, it’s best to shop around.

Extended mortgage renewal notice period

Under a proposed update to the Canadian Mortgage Charter, lenders would be required to notify borrowers of upcoming mortgage renewal terms four to six months before the contract ends (rather than the current three weeks). This longer notice period gives you more time to shop around for competitive renewal terms, review your budget, and take steps to secure the best mortgage arrangement for your situation. This proposal highlights the importance of early renewal preparation in today’s mortgage landscape.

Can you be denied mortgage renewal?

In Canada, it’s rare for a lender to deny a mortgage renewal to an existing borrower — but it can happen.

In most cases, a denied mortgage renewal occurs when there is a dramatic change to your financial situation, such as a job loss, or you repeatedly fail to make your mortgage payments.

"Everyone has a plan until you’re punched in the face.” – Jesse Abrams, CEO of Homewise (paraphrasing Mike Tyson)

If this happens, your options are to:

• Renegotiate with the same lender (but expect higher mortgage rates or an adjustment to the mortgage term or the overall amortization timeframe)
• Negotiate with a different lender
• Consider an alternative lender (just be sure to avoid unregulated private lenders)
• Work with a mortgage broker

“In these cases, an independent mortgage broker with access to various types of lenders can really help,” explains Abrams. Even when a borrower is denied a mortgage renewal at their current lender, there are loan options that don’t include predatory lenders.

“A lot of people feel like ‘bank’ means ‘best’ and, oftentimes, the bank isn’t the best,” explains Abrams. “Quite often, the most competitive mortgage contracts are offered by credit unions, smaller banks and mono-lenders — all lenders that spend far less on marketing their brand.” He adds: “Even a short-term loan contract with a B-lender can be a better option than a mortgage renewal with a potentially predatory lender.”

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Is it worth it to renew your mortgage early?

If you’re concerned that interest rates will increase in the near future, then locking in a rate through an early renewal process can help. However, the benefit of an early renewal really depends on three factors:

• The mortgage rate offered on the renewal
• Mortgage terms
• Penalty costs associated with breaking your current mortgage contract

If a renewal rate is lower than your current rate (or the anticipated future mortgage rate), renewing your mortgage early can help save you money, but only if the penalty to break your current mortgage isn’t high. Always talk to your current lender about the penalty to break the mortgage and factor in these costs when calculating any potential savings.

What happens during a mortgage renewal?

When a mortgage nears the end of a contract term, lenders will send a letter, either digitally or by regular mail, notifying the borrower. This letter lists the current mortgage balance, payment amount, frequency and interest rate. The letter will also include a renewal form that lists the new mortgage amount, the updated mortgage rate and term, and your new monthly payment.

For federally regulated lenders, such as the big banks, this mortgage renewal letter must be sent to you at least three weeks before your current mortgage contract ends.

Potential changes to the Canadian Mortgage Charter

The Canadian Mortgage Charter (CMC) is not a law but lays a good groundwork for what Canadians can expect throughout the mortgage finance process.

For instance, borrowers facing exceptional budget constraints should be free to renegotiate a mortgage relief solution without paying the fees and costs associated with breaking a mortgage.

As a set of regulations, the CMC offers six guidelines, including an update on when a lender must provide renewal details to a current borrower. Before CMC, lenders had to let borrowers know their renewal terms at least three weeks before the end of the current mortgage contract. Under CMC, lenders would be required to notify the borrower four to six months in advance. The advantage is that more time allows borrowers to investigate affordable mortgage renewal options.

For more information, see the Department of Finance statement dated Dec 12, 2023.

If you sign this mortgage renewal letter and send it back to your current lender, you’ve renewed your mortgage. It’s that simple.

Unfortunately, there can be a steep price for simplicity — like spending tens of thousands more on interest charges. To avoid this costly mistake, it’s best to tackle a mortgage renewal as if it’s your first mortgage: Compare rates and look for flexible terms before finalizing a new mortgage contract.

How to renew a mortgage?

The process of renewing a mortgage is the same as finding a mortgage, and that means everything is up for negotiation, including:

• Lender
• Contract term (length of time for current mortgage contract)
• Mortgage rate
• Prepayment privileges
• Potential fees, penalties and perks

To speed up the process, it helps to work with an independent mortgage broker.

“Working with a mortgage broker who is completely lender agnostic means the borrower’s needs take priority,” explains Abrams.

“An independent mortgage broker can find the mortgage contract with the lowest penalties and better prepayment privileges while negotiating the most competitive mortgage rates and terms.”

Option 1: Renew a mortgage with your current lender

This is the simplest solution; however, that doesn’t mean you shouldn’t comparison-shop. Check to see what rates different lenders offer and attempt to negotiate a better rate. While you may not get a better rate, you may get better terms.

The advantage of this option is that you won’t need to requalify for a mortgage — you skip the mortgage stress test — and there won’t be any fees associated with renewing (unless it’s a private lender).

Option 2: Renew a mortgage with a new lender

Renewing a mortgage with a new lender may require more work, but it could help you save tens of thousands in interest charges.

To renew your mortgage with a different lender, you will need to:

• Research options
• Requalify
• Pass the mortgage stress test
• Potentially pay administrative fees, such as an appraisal cost or a discharge fee

Still, for homeowners with significant equity in their home or people in a good economic position, requalifying is simple — consider it a process that gets you access to better rates and terms. Is renewing your mortgage the same as refinancing? If you’ve built up equity in your home, you may want to refinance rather than renew your mortgage.

While refinance is similar to mortgage renewal — the process includes accessing cash currently stored in your home’s value — it is not the same.

So, how does a refinance work? If your home is worth $750,000 and your mortgage renewal shows a loan balance of $300,000, then you would have $400,000 in home equity. A refinance would require a new mortgage that includes the current loan balance of $300,000 and the additional funds based on your home’s equity. For example, if you want to use $50,000 to renovate your home, you would negotiate a new mortgage contract for $350,000. This new mortgage application is known as a refinance.

Is renewing a mortgage the same as refinancing?

While the two processes are similar — as they both result in a new mortgage contract — a mortgage renewal is not the same as a mortgage refinance.

A mortgage renewal is an extension of your home loan, while a refinance is a new loan that includes the current amount owed on the home loan plus any equity you plan to take out.

A mortgage refinance can be a good solution if homeowners find their budget is too tight, explains Carly Fautley, associate vice president of Real Estate Secured Lending at TD.

Whether you're hunting for a new home or looking to refinance your mortgage, knowing how much your new loan might cost you is critical. Use our handy mortgage calculator to help you understand what your payments could look like.

Bottom Line: Will mortgage rates go up in 2024?

It’s possible. But, while there is no crystal ball to predict mortgage rates, current trends and expectations suggest that mortgage rates will stay the same or go down in 2024.

If you have a fixed-rate mortgage, changes in mortgage rates are unlikely to affect your mortgage rate or monthly payment immediately. Borrowers with variable-rate mortgages, however, will feel the impact of any mortgage rate change.

As we look ahead to the end of the year and going into the next year, the Bank of Canada is expected to keep a close eye on inflation stabilization. Given current economic conditions many experts anticipate further rate cuts — additional relief for homeowners considering variable-rate mortgages. Monitoring these trends can help you decide whether to lock in a rate early or consider variable options that may decrease over time.