4 crucial tips for Canadian homeowners considering renewing their mortgages in 2024

Negotiating a mortgage renewal is tricky. Mortgage rates increased significantly over the last few years. Now, many Canadians face much higher monthly payments as the countdown toward a mortgage renewal deadline approaches. According to the Bank of Canada, 80% of all mortgages are up for renewal in 2024. This represents $251 billion in outstanding mortgages. By 2026, all current mortgages will be up for renewal, Whether this is your first or last time renewing your home loan, the good news is that renewing your mortgage involves the same process: comparing rates and reading the fine print.

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, Money.ca has 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."

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.

Tip #3 — Opt for a new amortization

For those facing a steep increase in the cost of living, it may be wise to consider ways to minimize how much your monthly mortgage payment could increase.

One option is to extend your amortization period when it comes time to renew your mortgage. A longer amortization results in smaller monthly payments — making your mortgage loan more affordable, at least in the short term.

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.

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. However, a December 2023 announcement by the federal government suggests borrowers with existing mortgages can skip the stress test to requalify for a mortgage, even if renewing with a new lender.

This is good news for anyone facing a mortgage renewal as it prompts more competition among lenders — forcing lenders to lower rates to attract mortgage renewal business.

These changes are expected to take effect once the 2024 federal budget is passed. 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 only last for one to five years. At the end of the contract, the homeowner must either repay the entire mortgage loan in full 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.

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.

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.

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."

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.

For more on home equity read this guide to home equity loans.

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.