When you renew a mortgage, you keep the same loan and sign a new term and interest rate once your current term ends. When you refinance, you replace your existing mortgage with a brand new one, usually so you can borrow more money or change the terms of your loan.
Here's how that looks with real people. Maria owes $400,000, and her five-year term ends in two months. Her lender offers her a new rate for another five years. She accepts, and her balance stays at $400,000. That's a renewal.
James also owes $400,000, but he wants $60,000 for a kitchen renovation and to pay off a credit card. He asks his lender to replace his mortgage with a new $460,000 one. That's a refinance.
Both choices change your mortgage, but they work differently, cost different amounts, and involve different paperwork. This guide explains each one in plain language.
How renewing works
Most Canadian mortgages run in terms of one to ten years, with five years being the most common. When your term ends, you still owe money, so you need a new term. That's your renewal.
At renewal, you can:
Stay with your current lender. Your lender sends you a renewal offer a few months before the term ends. You sign it, and your mortgage continues under the new rate and term.
Switch to a new lender. You move your mortgage to a different lender who offers a better rate or better terms. A switch usually means a new mortgage gets registered on your property, so a lawyer gets involved. Some lenders cover the legal fees on a switch, but not all do, so ask first.
Either way, your balance stays the same. You don't borrow new money, and you don't pay a penalty, because your term has already ended.
How refinancing works
A refinance breaks your current mortgage and replaces it with a new one. You usually do this for one of these reasons:
To take out home equity for renovations, a large expense, or an investment
To pay off high-interest debt like credit cards or loans, by rolling them into your mortgage
To change your mortgage structure, such as the length of the repayment period
To buy out a partner or spouse, or to take someone off the mortgage
A refinance involves more steps than a renewal. The lender reviews your income, credit, and property value again, and often asks for an appraisal. Your lawyer reviews title, prepares the new mortgage, pays out your old mortgage and any debts you want to clear, registers the new mortgage, and sends you the remaining funds.
In Canada, lenders generally let you borrow up to 80% of your home's value in a refinance, including what you still owe. Your own limit depends on your lender and your finances.
What about the cost?
Renewing with your current lender usually costs very little. Refinancing costs more. Expect to pay legal fees, possibly an appraisal fee, and, if you break your mortgage before the term ends, a prepayment penalty. That penalty can run into thousands of dollars, depending on your lender and your rate, so ask your lender for the exact number before you decide.
Darr Law offers a flat fee for refinances, so you know the legal cost up front.
Which one is right for you?
Ask yourself one question: do you need more money, or just a new rate?
If you only want a new rate and your term is ending, renew. Compare offers from your current lender and others first, because the rate you get can change what you pay over the next five years.
If you need cash, want to consolidate debt, or need to change who's on the mortgage, refinance.
If your term isn't up for a while and you want a better rate, ask your lender what breaking the mortgage would cost. Sometimes the penalty cancels out the savings.
A mortgage broker can compare your options, and your lawyer can explain the legal side of whichever path you choose.
The bottom line
Renewing keeps your mortgage going with a new rate and term. Refinancing replaces your mortgage with a new one, usually to borrow more or change the structure. Renewing is simpler and cheaper. Refinancing gives you more flexibility but takes more work and costs more.
Planning a refinance? Contact us, and we'll walk you through the legal steps and give you a clear flat-fee quote.