A common misconception among mortgage borrowers is that they must wait for their lender to contact them to start the renewal process.
Yes, in the months leading up to the end of your mortgage term, a letter will arrive prompting you to sign on the dotted line to lock back in for another term. But it almost never contains a competitive mortgage rate.
Getting the lowest rate possible will be key for the many Canadians renewing in 2025. This is an especially rate-sensitive group of borrowers, since the majority got their mortgages five years ago when rates sat at pandemic-era lows. Given today’s rates are roughly 300 to 400 basis points higher than in 2020, renewing borrowers should be expecting higher monthly mortgage payments.
Analysis by Bank of Canada staff economists released in January found 60 per cent of all outstanding mortgages will be renewed by the end of 2026, and the largest share have five-year terms. Forty per cent of those will likely face a higher interest rate at renewal time.
This all adds up to what has been dubbed the mortgage renewal wave, which kicks into high gear this summer. June, 2020, marked the start of the pandemic buying spree, according to the Canadian Real Estate Association, when lockdown restrictions spurred a 63-per-cent monthly spike in sales.
The ideal time to shop around for a mortgage rate is actually six months ahead of your maturation date. That means, if you’re among these early-COVID summer buyers, now is the time to get started. You can do that by committing to a lower rate today, with the option of extending your rate hold.
For example, let’s say you’re coming up for renewal this August. That can seem eons away, especially since the threat of U.S. tariffs and a possible Canadian recession have made for an unpredictable mortgage rate outlook. But both fixed and variable mortgage rates are comparably lower today than in recent years, with some five-year term options still below 4 per cent.
It can make sense to commit to that lower rate today by applying, and being approved, by a new lender, and a term to start 120 days out in early June. At that time, the borrower can decide whether to break their current mortgage a few months early, and commit to this new mortgage contract and rate.
They’ll likely pay a penalty to break their current mortgage, but it could be small given they’re so close to the end of their term. This cost may also be offset by the savings from receiving a lower renewal rate than they would otherwise have been offered from their existing lender – after all, banks tend to save their best deals for new customers, rather than existing business.
If it doesn’t make sense to pay the penalty, the borrower still has the option to ride out the remainder of their existing term by requesting another 120-day rate hold from their new lender. Now, if rates have increased over this time period, they may not be guaranteed the same rate they had previously qualified for, but it will still likely be a competitive option compared to their status quo. If it’s a scenario where rates have actually dropped, our borrower now has access to even more attractive options.
While this mortgage strategy can help lock in a great fixed mortgage rate, it also applies to variable options. Variable rates will fluctuate alongside the Bank of Canada’s rate decisions, but this method can help the borrower secure the most favourable spread to the prime rate.
Overall, shopping around early offers borrowers the greatest security and flexibility. They’re guaranteed access to today’s rate environment while hedging against rising rates, and they can still act if rates fall by the time their mortgage term ends.
Penelope Graham is the director of content at Ratehub.ca.
