Your mortgage renewal might be the most expensive piece of mail you ignore. Every five years (or sooner, depending on your term), your lender sends you a renewal letter with a new rate and a signature line. Most Canadians sign it within a week. That single signature can cost you $5,000 to $15,000 over the next term — money you would keep in your pocket with 30 minutes of effort.
Here are the five most common renewal mistakes I see, and exactly how to avoid each one.
Mistake 1: Blindly Signing the Renewal Letter
This is by far the most expensive mistake. Your bank sends a renewal letter roughly 30 to 60 days before your matcongratulations date. It includes a rate, a term, and a place to sign. Most people sign it without question because it feels like a formality.
It is not a formality. It is a negotiation — and you are starting from a position of strength.
Why this costs you money:
Banks know that approximately 70% to 80% of borrowers renew with their existing lender without shopping around. Because of this, the rate on your renewal letter is almost never the bank's best rate. It is typically 0.15% to 0.50% higher than what they would offer a new customer.
On a $400,000 mortgage, a rate difference of just 0.25% costs you approximately $4,800 over a five-year term. At 0.50%, that becomes $9,600. This is real money lost simply because you did not ask.
What to do instead:
Start the renewal process 120 days before your maturity date. Contact a mortgage broker who can show you rates from 60+ lenders. Even if you ultimately stay with your current bank, having a competing offer gives you leverage to negotiate a better rate.
Mistake 2: Not Shopping Around
Many Canadians assume their current lender will give them the best deal because they have been a loyal customer. Loyalty does not get rewarded in Canadian mortgage lending. If anything, it gets exploited.
The reality of lender loyalty:
Your bank already has your mortgage. They have no incentive to offer you their best rate because switching lenders requires effort — new application, new legal paperwork, new appraisal. They are betting on your inertia.
Meanwhile, other lenders are actively competing for your business. At renewal, you can switch to any lender with zero penalty. The new lender often covers your legal and appraisal costs to win your business. Switching is far easier than most people think.
How shopping around saves you money:
I recently worked with a client whose bank offered a 5.04% renewal rate on their $380,000 mortgage. After shopping the market, we secured 4.49% with a different lender. Over their five-year term, that 0.55% difference saves them over $10,200. The switch took less than two weeks and cost them nothing out of pocket.
What Renewal Shopping Looks Like
- Contact a broker 120 days before maturity
- Provide your current mortgage statement and recent income documents
- Receive competing offers from multiple lenders within 48 hours
- Either switch to the best offer or use it to negotiate with your current lender
- Complete the paperwork — most of it is digital now
Mistake 3: Ignoring Penalty Calculations When Breaking Early
Sometimes the best financial move is to break your mortgage before renewal — even with a penalty. But most borrowers do not understand how penalties work, and that misunderstanding keeps them trapped in a bad rate.
How penalties are calculated:
For variable-rate mortgages, the penalty is almost always three months of interest. On a $400,000 balance at 5%, that is roughly $5,000. Straightforward and predictable.
For fixed-rate mortgages, the penalty is the greater of three months' interest or the Interest Rate Differential (IRD). The IRD can be extremely expensive — I have seen penalties of $15,000 to $30,000 on fixed-rate mortgages.
When breaking your mortgage makes sense:
If you can secure a rate that is significantly lower than your current rate, the savings over the remaining term can far exceed the penalty. For example, if breaking your mortgage and switching to a lower rate saves you $800/month, and the penalty is $8,000, you recover the penalty cost in just 10 months. Everything after that is pure savings.
The critical detail most people miss:
Not all lenders calculate the IRD the same way. Some banks use posted rates (which are artificially high), resulting in much larger penalties. Monoline lenders and credit unions often use more borrower-friendly IRD calculations. This is something a broker can analyze for you before you commit.
Mistake 4: Choosing the Wrong Term Length
At renewal, you have the opportunity to choose a new term. Most Canadians default to a five-year fixed because it feels safe and familiar. But the right term depends on your specific plans and the current rate environment.
When a shorter term makes sense:
- Interest rates are elevated and expected to decline in the next one to two years
- You plan to sell your home within the next two to three years
- You want flexibility to refinance sooner if your financial situation changes
- You anticipate a major life change (job relocation, growing family, retirement)
When a longer term makes sense:
- You have locked in a historically low rate and want to protect it
- Payment stability is your top priority
- You plan to stay in your home for the foreseeable future
- Your budget has little room for payment fluctuations
The hidden cost of the wrong term:
Choosing a five-year fixed when a three-year fixed or a variable rate would have been better can cost you thousands over the term. Conversely, going variable when rates are rising can lead to payment shock. There is no universally right answer — it depends on your situation, risk tolerance, and financial goals.
Consider a Variable Rate at Renewal
Variable rates often carry lower penalties (three months' interest vs. IRD) and historically outperform fixed rates over time. If you have financial flexibility to handle modest payment changes, a variable rate at renewal can be a strategic choice, especially if you think you might sell, refinance, or renegotiate within the next few years.
Mistake 5: Missing the Refinance Opportunity
Renewal is not just about getting a new rate — it is the perfect time to restructure your entire mortgage. Many Canadians miss this opportunity because they think of renewal and refinancing as separate things.
What you can do at renewal:
- Consolidate high-interest debt — Roll credit card balances, car loans, or lines of credit into your mortgage at a much lower rate
- Access home equity — If your home has appreciated, you can pull out equity for renovations, investments, or other purposes
- Change your amortization — Reset to a longer amortization to lower payments, or shorten it to pay off your mortgage faster
- Add or remove a borrower — Common after a marriage, separation, or when a co-signer is no longer needed
- Switch between fixed and variable — Choose the product type that best fits your current situation
A real example of refinancing at renewal:
A client came to me carrying $28,000 in credit card debt at 19.99% interest alongside a $350,000 mortgage renewal. By refinancing and consolidating, we rolled the credit card debt into their mortgage at 4.6%. Their minimum credit card payments alone were $840/month. After consolidation, their total mortgage payment increased by only $160/month. They went from drowning in debt to having an extra $680/month in cash flow.
The Renewal Timeline
Here is the schedule I recommend for every homeowner approaching renewal:
- 120 days before maturity — Contact a mortgage broker and start shopping
- 90 days before maturity — Review competing offers and decide on your strategy
- 60 days before maturity — Submit your application to the chosen lender (or negotiate with your current lender)
- 30 days before maturity — Finalize paperwork and confirm everything is in order
- Maturity date — Your new mortgage seamlessly takes effect
Starting early gives you options. Waiting until the last minute limits your choices and puts you at your current lender's mercy.
The Bottom Line
Your mortgage renewal is not an administrative task — it is a financial decision worth tens of thousands of dollars. The five minutes it takes to sign your bank's renewal letter could cost you $10,000 or more compared to spending 30 minutes shopping the market.
Whether you ultimately stay with your current lender or switch, at least make that decision with full information. A mortgage broker can show you what the market is offering and help you negotiate from a position of strength — at no cost to you, since brokers are paid by the lender.
Your next renewal is coming. Do not let it cost you more than it should.
