Is Renewing Your Mortgage the Same as Refinancing?

As a homeowner, you may have come across terms like mortgage renewal and refinancing, and asked yourself is renewing your mortgage the same as refinancing? While both these terms are related to your mortgage, they are not the same. Understanding the difference between these two terms is crucial for making informed decisions about your home financing.

In this blog post, we will delve into the differences between mortgage renewal and refinancing, helping you to understand which option might be best for your unique situation.

Understanding Mortgage Renewal

Mortgage renewal is a process that happens at the end of your mortgage term. In Canada, most homeowners have a mortgage term of five years, although it can range from six months to 10 years. At the end of this term, if you still owe money on your mortgage, you will need to renew it.

During a mortgage renewal, you can negotiate new terms and conditions with your lender. This includes the interest rate and payment schedule. If you’re not happy with what your current lender offers, you can switch to another lender without any penalties.

The Importance of Shopping Around During Mortgage Renewal

When it comes time for a mortgage renewal, many homeowners simply sign on the dotted line without shopping around for better rates or terms. However, this could be a costly mistake.

Just as when you first obtained your mortgage, it’s important to shop around during a mortgage renewal. Different lenders may offer different interest rates and conditions that could save you thousands of dollars over the course of your new term.

Remember that renewing with your current lender is not always the best option. It’s always worth exploring other options before making a decision.

What is Refinancing?

Refinancing is quite different from renewing your mortgage. When you refinance your home loan, it means that you’re replacing your current loan with a new one at or before the end of its term.

People usually refinance their mortgages to take advantage of lower interest rates or to access the equity in their homes (borrowing additional money), but it could also be for extending the amortization (ie. reducing your monthly payment by extending the amount of time it would take you to fully pay off the mortgage). For example, if you want to renovate your home, pay off high-interest debt, or invest in a business, you can refinance your mortgage to get the funds you need.

However, refinancing comes with costs. You may have to pay a prepayment penalty for breaking your mortgage term early, if you complete the refinance before your renewal date. Plus, there are legal fees, appraisal costs and other costs associated with setting up a new mortgage. Therefore, it’s important to weigh these costs against the potential benefits before deciding to refinance.

Mortgage Renewal vs Refinancing: Which is Right for You?

Whether you should renew or refinance your mortgage depends on your financial goals and circumstances.

If you’re happy with your current lender and don’t need to access the equity in your home, then a simple mortgage renewal might be the best option for you. However, remember to negotiate for better terms or shop around before renewing.

On the other hand, if interest rates have increased significantly since you took out your loan and you need some payment relief or if you need a large sum of money for a specific purpose, refinancing might be worth considering. Just make sure that the potential savings or benefits outweigh the costs of breaking your current mortgage term early.

In Conclusion

Mortgage renewal and refinancing are two different processes that offer unique advantages depending on your situation. It’s crucial to understand these differences so that you can make informed decisions about managing your home loan.

Remember that both processes involve negotiation and research. Don’t hesitate to seek advice from a mortgage broker who can help guide you through these complex decisions.

Your home is likely one of the most significant investments in your life – make sure it’s working for you in the best way possible by understanding all aspects of its financing!

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