Should You Renew Your Mortgage Early?

Jan 13

The Pros and Cons of Renewing Your Mortgage Early

As a homeowner in Alberta, you might be considering the option of renewing your mortgage early before your term is officially up. Renewing early can offer some advantages, but there are also potential downsides to keep in mind. It’s important to weigh the pros and cons carefully before making your decision.

Many lenders reach out to clients 3 to 6 months before their mortgage is up for renewal. This gives homeowners enough time to evaluate their options, compare rates, and decide whether to renew with the same lender or look for better terms elsewhere.

Here’s an overview of the benefits and drawbacks of early mortgage renewal to help you decide if it’s the right move for you.

Pros of Renewing Your Mortgage Early

1. Lock in Lower Interest Rates

One of the biggest reasons homeowners in Canada choose to renew their mortgage early is the opportunity to lock in a lower interest rate. If rates have dropped since you first took out your mortgage, renewing early can save you thousands of dollars over the life of your loan by reducing your monthly payments and the overall interest paid.

2. Avoid Rate Increases

If interest rates are expected to rise, renewing your mortgage early can protect you from those increases. By locking in a new rate now, you can ensure that your payments remain manageable, even if rates go up in the future.

3. Simplify Your Financial Planning

Early renewal can help you better plan your finances by extending your mortgage term at a predictable interest rate. This stability can make it easier to budget for the long term, especially if you prefer a fixed-rate mortgage. Knowing exactly what your mortgage payments will be can provide peace of mind.

4. Potential for Better Mortgage Terms

Early renewal may also allow you to renegotiate your mortgage terms, including the option to switch to a more flexible payment structure or add features like pre-payment privileges. If your financial situation has changed since you first secured your mortgage, renegotiating now could result in a mortgage better suited to your current needs.

Cons of Renewing Your Mortgage Early

1. Limited Rate Negotiation

While renewing early may allow you to lock in a lower interest rate, you might not get the lowest rate available if you’re still within your term. You may need to shop around to get the best rate.
According to data from the Canada Mortgage and Housing Corporation (CMHC), a significant number of Canadians tend to simply sign their mortgage renewal offers without negotiating for better terms. Approximately 60% of Canadians automatically sign their mortgage renewal documents without shopping around or seeking better rates from other lenders. This can result in missed opportunities for securing lower interest rates or more favorable terms.

2. Missing Out on Future Rate Drops

If interest rates drop further after you renew, you won’t be able to take advantage of those lower rates unless you break your mortgage again—likely leading to additional penalties. This is especially important if you’re in a variable-rate mortgage, as future rate fluctuations could impact whether early renewal was the best choice.

3. Reduced Flexibility

Once you renew your mortgage early, you’re locked into a new term. If your financial situation changes unexpectedly, such as needing to sell your home or refinance, breaking the mortgage again could result in penalties. Renewing early limits your flexibility if your life circumstances change down the road.

Is Early Mortgage Renewal Right for You?

The decision to renew your mortgage early should be based on your individual financial situation and the current mortgage market. If you’re considering early renewal, it’s essential to weigh the potential savings against any penalties or limitations.

Speaking with a mortgage broker can help you assess your options and find the best strategy for your financial goals. Brokers can help you compare rates, understand penalties, and determine whether early renewal is the right move for your circumstances.

Conclusion

Renewing your mortgage early in Alberta can offer significant advantages, particularly if interest rates are low or expected to rise. However, penalties, limited rate negotiation, and the risk of missing future rate drops are important factors to consider. By weighing the pros and cons carefully and consulting with a mortgage professional, you can make an informed decision that suits your financial future.

If you’re thinking about renewing your mortgage early, contact me today to discuss your options and ensure you’re making the best decision for your situation.