Can You Pay Off Your Mortgage At Renewal?

Can You Pay Off Your Mortgage At Renewal?

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated January 13, 2023

If you have a mortgage, odds are you’re tied to it for a few decades, depending on the length of your amortization period. But if your financial situation has improved since you initially took out your mortgage, you might have the opportunity to pay down your loan balance in full at the time of renewal. 

The question is, is this possible? And if so, should you pay it off in full at that time?

Let’s take a look at some considerations to make before deciding whether or not to pay off your mortgage when the term comes to an end. 

What Is A Mortgage Renewal?

A mortgage renewal involves a new agreement to renew a mortgage term with your lender. You’ll receive notification that your mortgage term is nearing its end within a month or so. 

The lender will outline the new term, including the interest rate if you decide to renew. This gives you enough time to decide whether or not to renew your mortgage, switch to a different lender, or pay off your mortgage altogether. 

You don’t have to wait for the mortgage term to end before renewing your mortgage. Instead, you can renew your term as early as 120 to 180 days before your current mortgage term expires. 

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Mortgage Prepayment Penalties

If you choose to pay off your mortgage at renewal, you may have to pay an early repayment penalty. The amount you have to pay will depend on a few things, including the lender you work with. 

Penalties are charged on closed mortgages, while open mortgages will not incur these penalties. The penalties for paying your mortgage off early with each of the big banks in Canada — including RBC, BMO, Scotiabank, TD Bank, and CIBC — are as follows: 

Closed Fixed-Rate Mortgage

The prepayment charge will be the higher of 3 months’ worth of interest or the interest rate differential (IRD) amount, which is the difference between the outstanding balance you owe at the time of the prepayment and the principal you would owe based on the posted rate for a similar mortgage, less any rate discount received.

Closed Variable-Rate Mortgage

The prepayment charge is 3 months’ worth of interest.

How To Avoid Mortgage Prepayment Penalties

Paying off your mortgage early can cost you a few thousand dollars in prepayment fees, depending on your outstanding balance, the interest rate, the number of months left in the term, and the current posted interest rate.

To avoid paying these penalty fees, there are a few things you can do:

Consider A Shorter Mortgage Term When You Renew

Instead of paying off your mortgage in full when you renew it, consider a shorter term. For instance, rather than choosing a 5-year term, perhaps a 3-year term might be better. This will allow you to boost your regular mortgage payments and avoid paying penalties.

Take Your Time Paying Off Your Loan

If you have a low-interest rate, you may be better off taking your time repaying your mortgage rather than getting stuck with prepayment penalties when you repay your mortgage in full.

Convert Your Home Loan Into A Line Of Credit

A line of credit can be used to pay off your mortgage at the end of the term. You can pay off the line of credit whenever you want with no penalties. Just keep in mind that the interest rate may be higher than it would be with a traditional mortgage. And if you’re not disciplined with your finances, you could wind up borrowing more in the long run.

Ways To Pay Off Your Mortgage Faster

If you have the financial means to pay off your mortgage more quickly and want to become mortgage-free sooner rather than later, be sure to first speak with your mortgage specialist to find out what your options are. 

Here are a few common choices you may have available to you to pay off your outstanding balance faster:

  • Double-up payments. Most mortgages allow borrowers to double up their mortgage payments. The double-up payment goes directly toward your principal balance, which helps you pay off your mortgage faster and save on interest. 
  • Lump-sum payments. Lenders typically allow borrowers to make a lump-sum payment to put toward the original principal amount once a year. The amount usually varies from 10% to 20% of the original principal amount.  
  • Make more frequent payments. Rather than paying monthly mortgage payments, you can speed up the process by switching to a more frequent payment schedule, such as semi-monthly, bi-weekly, or weekly. This will increase your payments and reduce the amount of interest you pay over time.
  • Make renewal payments. When your mortgage is close to renewal, you may be allowed to make a larger payment. 

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Can You Transfer To Another Lender At Renewal? 

When your mortgage is due for renewal, you don’t have to stay with your current lender. This may be a good opportunity to switch lenders, especially if you’re not happy with your current lender or you’re able to find a better deal elsewhere. 

When you renew your mortgage with another lender, you’re basically taking out a new mortgage with a new lender. The funds you receive from your new mortgage are used to pay off your existing mortgage with your previous lender.  

Before you transfer your mortgage to a new lender, be sure to consider the costs associated with doing so, such as the following:

  • Discharge fees
  • Registration fees
  • Assignment fees
  • Appraisal fees
  • Administration fees
  • Early prepayment fees

Oftentimes, new lenders may be willing to cover these costs to encourage the switch, so be sure to inquire with your new mortgage lender. 

Renewing vs. Refinancing

Renewing your mortgage is easier and faster compared to refinancing. All you really need to do is sign the renewal paperwork that your mortgage lender will send you just before your term expires. However, automatically allowing your mortgage to renew might mean missing out on a lower interest rate or better terms.

In this case, it might be better to look into your mortgage refinancing options. The question is, how much different is renewing versus refinancing?

FeesNone– Discharge fees
– Registration fees
– Assignment fees
– Appraisal fees
– Administration fees
– Early prepayment fees
Mortgage Interest RatesLittle room for negotiating Flexibility to comparison shop for the lowest rates
Mortgage TermNo room for negotiatingFlexibility to choose any term
Mortgage AmountOutstanding balance carries over to the new termRefinance for a new mortgage loan amount
DocumentationSign the renewal contractIn-depth mortgage application 

Final Thoughts

It’s certainly possible to fully repay your mortgage at renewal, but you might want to look at other options, such as making lump sum payments towards your principal. You’ll also want to consider the costs associated with paying your mortgage off early. 

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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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