Fluctuating interest rates have been a hot topic among Canadians over the past few years, and understandably so. A single point change has a significant impact when you take high housing prices into account.

Those seeking to buy or sell a house aren’t the only ones affected, either. For anyone whose mortgage is up for renewal, interest rates can cause a lot of stress and uncertainty. No wonder our team has been getting so many questions about mortgages and how they work! To help, we’ve put together this comprehensive list of FAQs for all things mortgage related.

Are you planning to sell or refinance your home? Start by booking a complimentary home evaluation right here.

How Does Mortgage Renewal Work?

You might think that once you apply for a loan, the process is over unless you decide to refinance. However, mortgages follow different guidelines since they are so long-term. The total length of your amortization period (how long it takes to completely pay off your loan) could be up to 30 years.

This total period is divided up into terms, usually five years. This gives you a chance to renegotiate the terms of your loan. If interest rates go down, you might pay your mortgage faster or have a reduced monthly payment. If they increase, your payments could be more for the duration of your new term.

Your lender will typically send you a renewal notice a few months before your contract expires. You can automatically renew at their stated terms. Alternatively, you (and probably should) shop different lenders to ensure you get the lowest possible rate.

Are you looking for unique insight to help sell your home in today’s fast-changing market? Look no further than the posts below:

• 8 Important Things to Remember When Selling Your Home
• Why Home Sellers Need to Think More Like Buyers
• A Back to Basics Guide to Maximizing Your Sale

How to Calculate Mortgage Renewal Payment

If you Google “mortgage renewal calculator Canada”, chances are you will find hundreds of results online. That said, we recommend that you speak to a reputable mortgage professional rather than relying on online tools, especially when rates are changing.

While tools like these can be a starting point and give you an idea of what to expect, they can also be misleading. If a number comes back too high, it can cause unnecessary stress. If they underestimate your mortgage renewal, you may be in for a shock when you get your actual rate.

If you want to use a free mortgage renewal calculator, just be sure to take the results with a grain of salt and confirm everything with your lender. In addition, make sure it’s a Canadian site as plenty of American sites will also pop up.

If you are in a position to do so, you can pay off your mortgage at renewal without penalty. At this point, you’ve reached your long-awaited goal of becoming mortgage free!

Do You Need to Qualify for Mortgage Renewal?

Generally speaking, yes. However, the process is far more straightforward and lenient when staying with your existing lender. If your history is positive, there is no reason for them not to renew your mortgage.

It gets more complicated when switching lenders. You’ll have to submit a whole new mortgage application and undergo another credit check. If you have the chance at a lower rate, it could be worth the extra effort.

What Happens if Your Mortgage Renewal Is Denied?

Can a bank deny mortgage renewal in Canada? Unfortunately, yes. However, it is rare unless your finances or credit rating have taken a dramatic turn.

If it happens, it’s best to find out early so you can take steps to remedy the situation. With enough time, you can work to improve your credit score and negotiate with your existing lender. In the worst-case scenario, you can try working with a B-lender or private mortgage company.

Can You Change the Amortization Period on Your Mortgage at Renewal?

Your mortgage renewal gives you the chance to renegotiate all of your terms, including your amortization period. A longer period can mean lower payments, but keep in mind that you’ll pay more in interest over time.

If you’re in a position to increase your monthly payments, you can ask for a shorter amortization period and save on interest. That said, each lender will have their own policies. Whether or not your mortgage is insured could also play a role in how flexible they will be with your new terms.

Do Banks Check Credit for Mortgage Renewal?

The answer is it depends on whether you are staying with your existing lender or switching to a new provider. Your existing lender is already familiar with your financial history. It’s not likely that they’ll run another credit check even though they have the option.

A new bank requires a whole new application, and they are almost sure to check your credit rating.

How Does Selling a Home Work With Mortgage Work?

Clients often ask us, “Can I sell my home before the mortgage term is up?” Your house is your property, so you can sell whenever you choose. However, the bank could charge a penalty depending on the type of mortgage you have. Open mortgages are far more flexible, although they can come with higher interest rates.

Closed mortgages are more strict. If you sell your home before your term is up, you will likely have to pay a fee unless you can port your mortgage to your next purchase. As always, it pays to have a discussion with your lender so you can fully explore your options.

What Happens If You Default On Your Mortgage?

Defaulting means a failure to pay your mortgage on time or in the full amount. When that happens, the bank may charge you a late fee as outlined in your agreement. It could also affect your credit rating if you are consistently late or overdue.

The bank’s first course of action is generally to send you an overdue notice. Typically, there is a grace period that allows you to bring your account back into good standing. If you fall behind, your lender may initiate a Power of Sale or Foreclosure as a last resort.

If you are in financial duress, it’s best to communicate with your lender as early as possible. They may be able to offer a solution, such as a longer amortization period with lower monthly payments. You can also look to Canada’s federal website for guidance and extra resources.

What Is A Mortgage Stress Test?

When applying for your mortgage, a federally regulated lender will review your ability to repay based on a couple of percentage points higher than the current interest rate. This ensures that you will still be able to afford your home if rates rise. It protects your interest and theirs, and helps to reduce mortgage delinquencies.

Inevitably, clients will often ask how to avoid a mortgage stress test. Keep in mind that this usually only applies to new borrowers. As of late 2024, existing homeowners are exempt upon renewal as long as your mortgage amount and amortization period stay the same and you are with a federally regulated lender.

Non- regulated lenders operate under different rules and may also allow you to bypass this requirement.

Whether selling or buying a house, it pays to know how the market and financing work. You’ll gain valuable insight in the posts below:

• What Is Bridge Financing and Do I Need It When Selling My House?
• A Home Seller’s Guide to Closing Costs
• How Mortgage Stress Tests Affect Home Sellers

What Is a Variable-Rate Mortgage?

Now, let’s get into the different types of mortgages in Canada. A variable-rate mortgage is one where your interest rate could change multiple times throughout your term. When rates are high, your mortgage payments also increase. When the Bank of Canada lowers the rate, your payments could go down. Alternatively, your lender might apply more to the principle of your loan so you pay it off faster.

If you’re okay with fluctuating rates, a variable mortgage can be less expensive over the long term as the rates tend to be lower most of the time. However, there are no guarantees without a locked-in mortgage. A closed variable-rate mortgage could potentially offer even lower rates but have more restrictions as to whether you can pay off your loan before the end of your term. The penalty for ending your contract is typically three months’ worth of interest.

What Is a Fixed-Rate Mortgage?

Unlike a variable term, a fixed-rate mortgage means your interest is locked in for the entire duration of your term. Many homeowners feel it’s a less risky option because you know how much your payment will be every month.

That said, interest rates are sometimes higher with fixed mortgages. The other difference is that while variable mortgages are tied to the Bank of Canada, fixed loans are based on Canadian bond yields. Most terms are five years. That said, the longest fixed-rate mortgage in Canada can be up to 25 years. These types of loans are rare, and rates can be higher. However, it might be worth checking into if you’re locking in during a time of unprecedented low interest.

What Is the Penalty for Breaking a Fixed-Rate Mortgage?

You might decide to break your term early if you sell your home or come into a sum of money. Depending on the type of mortgage, the bank may charge a penalty along with an administrative fee.

Open mortgages come with few, if any, consequences to ending the term early. With a closed fixed-term, the penalty is usually one of the following, whichever is greater:

1. Three months’ worth of interest based on your remaining balance and the current rate.
2. The Interest Rate Differential based on how much interest you would have paid if you had completed your term. This can be significant, especially if the rate is higher than when you originally began your term.

My Mortgage Is Too High. What Can I Do?

The monthly mortgage payment is the greatest expense for most households. Buying a home is an expensive endeavour, but remember that you are acquiring a valuable asset that will appreciate even more in time. What happens if your financial situation changes and you simply can’t keep up with your payments?

Your first step is to talk to your lender, preferably before you go into default. Many will work with you if you are facing difficulty, provided you are acting in good faith. Your options may include refinancing your mortgage for a longer amortization period. This will reduce your monthly payment, but take longer to pay off. You will also pay more interest over the long term.

If you’re not in financial distress but still want to lower your monthly mortgage, you might consider a lump sum payment at the end of your term. This helps you become mortgage free sooner while paying less interest overall.

Whenever your mortgage term draws to a close, you can always talk to a mortgage broker to see if you can find a lender with more favourable terms.

Are you planning your next home purchase? The posts below can help you get started:

Our Ultimate Handbook for First-Time Buyers

Hidden Costs of Buying a Home You Need to Know Now

7 Amazing Benefits of Working with a Real Estate Agent

What Does A Mortgage Broker Do?

Real estate agents will often refer clients to a mortgage broker when searching for financing for a new home. Unlike a bank or credit union, a mortgage broker can shop multiple lenders all at once to find you the lowest rate and the best terms. Plus, it only counts as one search on your credit report, which can be important for anyone conscious about their credit score.

There you have it, a complete guide to everything you ever wanted to know about mortgages! If your mortgage is coming up for a renewal, you have what you need to negotiate the best terms.

Do you want customized guidance when buying or selling a home? Our top agents in Hamilton & Burlington are ready to help with anything you may need. Contact us right here or call 905-332-9223 to connect with our office today.