Mortgage Renewal vs. Refinance: Which is Right for You?

Homeowner often find themselves into dilemma, whether to renew mortgage or refinance, especially when mortgage is near to it’s end terms. Understanding these two financial solutions is important in making informed decisions that align with your goals. In today’s blog, will discuss and share insight that will help you to determine which path is right choice to get best out of your investment.

What is a Mortgage Renewal?

A mortgage renewal occurs when the term of your existing mortgage ends, and you sign a new agreement with your current lender to start another term. Mostly renewal terms range from few months to five years or more depends upon lender’s policy. When your mortgage is close to an end, either you decide to pay off in full or renew it.

When to Renew Your Mortgage

You can renew your mortgage during the end of your mortgage terms. Until you owe outstanding balance on your home loan you need to renew it when you’re close to an existing terms end.

You can either accept your current lender’s offer or negotiate for better terms. If you choose to stay with your existing lender, then the process is usually straightforward and involves signing a renewal agreement. However, it’s wise to shop around and compare offers from other lenders as well, as you might find better interest rates or more favorable options in the market.

It’s very important to start reviewing your options a few months before your renewal date to ensure you secure the best possible terms.

How Does a Mortgage Renewal Work?

When you are close to your renewal, your lender will send a renewal statement at least 21 days before your maturity date outlining the new interest rate and terms. The lender will provide paper statement or e-statement with following information to start new terms:

  • Remaining principal amount
  • New interest rates
  • Monthly payment terms
  • Any charges or fees for application (potentially minimum cost for renewal)

The principal amount remaining on your mortgage stays the same, but the interest rate and contract terms of the mortgage can change based on current market conditions and your financial situation.

Happy Couple renewing mortgage

Will My Mortgage Automatically Renew?

Some lenders will automatically renew your mortgage if you don’t act by the end of your term. However, the new terms might not be favorable, and the interest rate could be higher than what you could get by exploring other lenders in the market. Be proactive and review your options before your term ends to avoid being locked into an unfavorable mortgage.

What Happens If You Don’t Renew Your Mortgage?

If you don’t renew your mortgage by the end of your term, your lender can automatically renew it, often at a higher interest rate. Alternatively, your mortgage could go into a default status, which can lead to penalties and a negative impact on your credit score. Therefore, act promptly when your mortgage term is nearing its end and seek for advice from mortgage broker whenever in doubt.

Can You Pay Off Your Mortgage at Renewal?

One of the advantages of a renewing your mortgage is the opportunity to pay off a portion or the entire balance of your mortgage without incurring prepayment penalties. If you’ve come into some extra money or want to reduce your debt load, renewing your mortgage can be a good time to make lump-sum payments.

What is a Refinance Mortgage Loan?

Refinancing a mortgage involves replacing your existing mortgage terms and policies with a new one from new lender. This will allow you to take advantage of lower interest rates, access home equity, or change the terms of your mortgage to better suit your needs.

Refinancing can be a strategic financial move if done correctly. As a homeowner you get a chance to secure a lower interest rate, consolidate debt, or finance home renovations. Unlike a renewal, refinancing requires a more detailed application process, just like when you first obtained your mortgage.

refinance home loan mortgage

When to Refinance Your Mortgage

If you looking to make significant changes to your mortgage like extending amortization period, access equity on your home, or want to secure lower interest rates then a refinance may be the best choice to make.

You can refinance your mortgage anytime in between your mortgage terms; however, there is chance of potential prepayment penalties to break the terms before it ends. This can be thousands of dollars. However, the savings from a lower interest rate or better terms can offset these costs over period.

By refinancing your mortgage, you can leverage several benefits:

Access Equity for financial needs

Equity on your home can be built up in many ways, either you pay down your mortgage loan or the value of your home has increased as per current market. You can borrow up to 80% of your property value and use those extra cash to fulfil your financial goals.

Secure Lower Interest Rates

If your interest rates have reduced since you acquired your first mortgage, refinancing your mortgage can help you to secure better interest rates with more favorable terms. Since you are getting into brand new mortgage, you get a chance to negotiate mortgage terms and amortization periods that fits your financial needs.

Consolidate High Interest Debt

If you hold high interest debt and looking for a way to consolidate it, then refinancing your mortgage is the best option to pay your debt faster and reduce your monthly payments. By accessing home equity, you can consolidate personal loans, payday loans, credit card debt and merge them into one lumpsum low interest payment.

Renew vs. Refinance Mortgage

Renew vs. Refinance Mortgage: Key Differences

Understanding the key differences between renewing and refinancing can help you to make wise decision that suits best for you.

  1. Interest Rates and Terms
  • Renewal: Your current lender will offer new terms based on prevailing market conditions. While you can negotiate but you’re generally limited to the offers provided by lender.
  • Refinance: This option will give you opportunity to shop around and explore the best rates and terms from other lenders. If interest rates have dropped or if your financial situation has improved since you first took out your mortgage, this will benefit you to secure best terms.
  1. Costs and Fees
  • Renewal: This is a straightforward process with minimum costs. Even, some lenders might not charge any fees for renewing your mortgage, making it quite easy and quick process.
  • Refinance: It’s a long process with higher costs, including appraisal fees, legal fees, and potential prepayment penalties if you break your current mortgage before the term ends.
  1. Flexibility
  • Renewal: Often less flexible, as you’re negotiating with your existing lender. However, if you have a good relationship with your lender, you might secure favorable terms.
  • Refinance: Offers greater flexibility and the potential to tailor your mortgage based on you on needs. This can include adjusting the amortization period, changing the type of mortgage (e.g., from a variable to a fixed rate), or accessing home. 

Here’s a table that explains the differences between mortgage renewal and mortgage refinance:

Criteria Mortgage Renewal Mortgage Refinance
Application Process Simple process with less paperwork. Complex process with extra cost, like the original mortgage application.
When to Choose If you want a simple process with minimum fees. If you want favorable rates or want to access extra cash through equity.
Credit Check May not require a new credit check. Requires credit check and financial assessment.
Drawbacks Potentially higher rates Higher application costs

Making a Right Choice

The decision between renewing and refinancing depends on individual’s situation. By keeping in mind your financial goals and understanding interest rates, cost associated with the process will help you in making wise decision on choosing your next mortgage terms.

If you’re unsure about options, then consulting mortgage advisors like and who provides valuable insights and help you to make the right decision.