Most homeowners when they first sign on to a new mortgage don’t give a lot of thought to renewing or refinancing their mortgages. But eventually when their mortgage term is up (most mortgage terms in Canada are five years although they may also be longer or shorter), the time will come for them to renew.
Because the words mortgage renewal and mortgage refinancing sound similar, some homeowners make the mistake of thinking that they are the same thing. This, however, is incorrect. While both mortgage renewal and mortgage refinancing involve getting a new mortgage, they have some very important
differences.
What is mortgage renewal?
Mortgage renewal occurs when the term of your current mortgage is up but you still have money owing on your home. Usually, you will get a notice from your lender a few month or so before your term ends informing you that the term is up and offering to renew your mortgage for another term at a rate
determined by the lender.
As a homeowner, you have the option to sign and send back your mortgage renewal letter, or shop around to see if you can get a better rate or more favorable terms from another lender. It is strongly encouraged that you work with a mortgage broker at mortgage renewal time to ensure that you get the
best rate and terms for your situation.
What is mortgage refinancing?
Mortgage refinancing happens when you decide to get a new mortgage before the term on your current mortgage expires. This means you will have to break your current mortgage early.
While mortgage refinancing in most cases will cause you to have a financial penalty by the lender for breaking your first mortgage, there are some good reasons why homeowners may choose to do this. Often people refinance their mortgages when interest rates have dropped significantly or when they
wish to access money from their home equity (to consolidate debt, pay for a home renovation, etc)
It is strongly advised that if you are considering refinancing, you do so with the help of a mortgage professional who can determine whether you will be able to save enough in interest payments to offset the financial penalty for breaking your mortgage.
Are you interested in mortgage renewal or mortgage refinancing? I can help you with both! Contact me today to set up an appointment.