Early Mortgage Renewal Explained: What you need to know

If you own a home in Canada and your mortgage term is coming to an end soon, your lender may offer you a chance to renew early. This is referred to as an early mortgage renewal. It means you can lock in a new rate and term before your current one ends.

At first, it might seem like a quick and easy option. But is it always the right move? Not always.

There are a few things you need to look at first—like how much time is left in your current term, what the new rate is, and whether there are any penalties or better options out there.

In this article, we’ll break down how early mortgage renewal works in Ontario, when it makes sense, and what to watch out for. Whether you’re renewing with a big bank, a credit union, or a private lender, it’s important to know what you’re agreeing to.

Understanding the pros and cons early on can help you avoid costly surprises and make a choice that fits your goals.

How Early Mortgage Renewal Works?

Early mortgage renewal lets you renew your mortgage before its term ends. In Canada, most lenders allow this up to 120–180 days before maturity.

You’ll receive a formal offer outlining the interest rate, term lengths, fees, and instructions to accept.

Once you accept, the new rate can start in two ways. Some lenders apply it right away—usually in the payment month after signing. Others wait until your official renewal date before making changes. It’s important to check this detail. It affects when your payments change and how much interest you pay.

Legally, your lender must provide you with at least 21 days’ notice before your term is up. But you can usually begin this process 4–6 months before your term ends. But if you accept an offer too early—before the penalty-free window—you may pay prepayment penalties. Those penalties can offset any savings from the new rate.

Why Consider Early Renewal? (The Pros)

Deciding to renew your mortgage early can give you a better handle on your finances. It also lets you match your mortgage with your current goals.

Here are clear and helpful reasons why going early can be smart.

1. Potential to Lock in a Lower Interest Rate

Rates change over time. If current rates are lower than your existing rate, renewing early can secure a cheaper one. This can help reduce your monthly payments and may save you money over the full term.

2. Rate Security

Rates can move both up and down. Renewing early protects you from sudden hikes. Locking in a stable rate may provide peace of mind. Your payments stay predictable for your next term.

3. Enjoy Convenience and Perks

Renewing early usually means a smooth process. You don’t need a full re-application. Some lenders offer perks too—like discounted rates or waived fees—for renewing within a certain period.

4. Avoid the Risk of Late Renewal

If you don’t act before your term ends, some lenders might auto-renew your mortgage into an open term, which may not be the right choice for you. Renewing early means you get to choose your rate and term, not your bank.

5. Negotiate or Switch Lenders

Starting early gives you time to compare and negotiate with other lenders. Your current lender may be willing to match or beat better offers. This puts you in control to get a better deal.

Drawbacks of Early Renewal (The Cons)

Renewing your mortgage before its term ends can feel like a good idea—but it can come with hidden costs.

Below are the main downsides you should think about if you’re considering early renewal.

1. You Might Face Large Prepayment Penalties

If you renew too early—before your lender’s allowed window—you may trigger a prepayment fee. In Canada, this usually means either three months’ interest or the interest rate differential (IRD)—whichever is higher.

The IRD can be very high. It’s calculated based on the difference between your current rate and today’s posted rate, times your remaining balance and time left on the term. Penalties can total thousands of dollars and often outweigh any savings from a lower rate.

2. You Could Miss Out on Better Rates

Market rates may continue to fall after you renew. If that happens, your early renewal locks you into a rate that might not be the best. It could limit your ability to take advantage of future drops.

Since timing interest rates accurately is difficult, you might regret renewing early if rates drop significantly before your term ends.

3. Your Options May Be Limited

Once you accept the early renewal, you reduce your flexibility. You may lose the chance to shop around or negotiate new terms based on changing market conditions.

If you later find a better rate or lender, you’ll face the same penalties and limits for making a switch.

4. Personal Changes Might Be Overlooked

Since your renewal locks in current terms, you might miss out on improved opportunities if your financial position improves. Maybe your credit score has gone up, or income has increased, giving you access to better rates.

Early renewal might stop you from moving to a shorter term or accessing flexible options if your needs change.

5. Fees Can Add Up Beyond Interest Penalties

In addition to IRD or three months’ interest, you might face administrative fees, legal charges, home appraisal costs, and discharge fees.

These costs, together with penalties, can quickly erase any savings from a lower rate.

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How and Where to Renew Your Mortgage?

When your mortgage term ends, you have two main options for renewal. You can either stay with your current lender or switch to a new one. Each choice comes with different steps and potential benefits.

Here’s how both work.

Staying With Your Current Lender

Renewing with your existing lender is usually the simplest route. Most of the time, you won’t need to go through any approval process again. The lender may send you a renewal offer a few months before your term ends. You can either accept the offer as is or try to negotiate a better rate or term.

For borrowers with a traditional lender, like a bank or credit union, there are usually no extra fees to renew. If you’re working with a private lender, though, renewal fees might apply—so it’s a good idea to confirm that early.

Switching to a New Lender

You’re not required to stay with your current lender. If another lender is offering a better rate or more flexible terms, you can transfer your mortgage at renewal.

However, changing lenders takes a bit more work. You’ll need to requalify, which means the new lender will review your income, credit score, and debt levels. The good news is that if you’re only switching lenders (not increasing your loan amount), some may be able to skip the mortgage stress test.

You may also face a few extra costs. These could include appraisal fees, legal costs, or discharge and registration fees. In some cases, the new lender might cover part of these costs to win your business—so it’s worth asking about.

Steps to Take For Successfully Renewing Your Mortgage in Toronto, Ontario

If your mortgage term is coming to an end soon, renewing early can help you plan ahead and possibly save money. But it’s important to follow the right steps. Starting early gives you time to review your options and make a choice that works for your needs and budget.

Here’s a step-by-step guide to help you move forward with confidence.

Step 1: Start Looking About 4 to 6 Months Before Your Term Ends

In Ontario, most lenders let you start the renewal process about 120 to 180 days before your mortgage maturity date. This early window is important because you can renew without paying penalties during this time. Use it to get organized and look at what your lender offers.

Step 2: Review the Early Renewal Offer from Your Lender

Your current lender will usually send you a renewal offer as your term gets close to ending. The offer includes a new interest rate, possible term lengths, and the effective date of the rate. Read the offer carefully. Make sure you understand when the new rate starts and whether it benefits you. If anything is unclear, reach out and ask questions.

Step 3: Compare With Other Lenders or Mortgage Brokers

You don’t have to accept your lender’s first offer. Contact other lenders and brokers to compare current rates. Many lenders are willing to offer better terms to win your business. Checking around gives you a stronger position to negotiate.

Step 4: Add Up the Full Costs and Potential Savings

It’s not just about interest rates. If you’re renewing early, include any possible penalties or fees in your calculations. Use mortgage calculators online or speak with a mortgage advisor to understand the total cost. The goal is to see whether an early renewal or a switch actually saves you money over time.

Step 5: Try to Negotiate a Better Offer

Once you’ve seen what other lenders are offering, go back to your current lender. In some cases, they may match or even improve their offer to keep you. It’s worth having that conversation—it could save you thousands over the new term.

Step 6: Make a Final Decision Based on What Works for You

Once you’ve compared all the options, you’ll need to decide which path to take. You can:

• Accept your current lender’s early renewal offer
• Ask for a blend-and-extend option (which mixes your current rate with a new term)
• Switch to a different lender entirely

Each option has pros and cons. What matters is choosing the one that fits your current financial goals and gives you the best value going forward.

Final Thoughts

Renewing your mortgage early can be a smart move—but only if the numbers make sense. It’s important to start early, compare offers, and understand the costs involved.

While early renewal can help you lock in a better rate and avoid rising interest costs, it may also come with penalties or missed savings if rates drop.

Take time to review your lender’s offer, explore other options, and ask questions before signing. Whether you stay with your current lender or switch to a new one, the goal is to choose what works best for your financial situation—both now and in the years ahead. It is strongly recommended to discuss your options with a professional, such as a mortgage broker.

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.