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Refinances vs Renewals

December 14, 2015

Once you’ve got your first mortgage, at some point in the future you are going to either consider a refinance or a renewal.   But what exactly is the difference between these two?  The easiest way of explaining this is as follows:

A mortgage renewal is where you are the end of your term and are ‘renewing’ on to a new term. You can choose to stay with your existing lender or most other lenders will let you switch to them for free.  For example, let’s say you signed a 5 year term with a lender then you would want to start to think about your mortgage renewal options around 4 1/2 months into this.
A mortgage refinance at it’s most basic means that you are changing something. Rather than just renewing your mortgage at the same balance, amortization or even before the end of the term – you are changing one of these.

For more explanations regarding mortgage term vs mortgage amortization, see our article LINK

The most obvious distinction between a renewal and refinance is timing.  A renewal happens when your mortgage term is up (eg. the 5 year deal you signed is coming to an end).  A refinance can happen at any time, including when the term was up (eg. you switch mortgages 3 years into your 5 year term).

However, even if you were just looking to renew your mortgage at the end of the term, you could consider refinancing instead if you were thinking about any of the following:

Increasing your mortgage amount – perhaps taking some cash out of the house for renovations or to pay off some debts.
Increasing your amortization – perhaps to reduce your monthly payments and give you more flexibility and options with your cash.

The timing is very important though as at the end of the term is the best time to refinance a mortgage. The reason for this is that if you refinance in the middle of the term, you have to pay a penalty to your existing lender for breaking the mortgage early.


There are also more costs associated with a refinance than a renewal.  On a renewal, the legal transfer of the mortgage (if you were switching lenders) is very simple – so almost every single lender will cover this.

However, on a refinance – since the key to a refinance is that you are changing something – then whatever you are changing needs to be properly legally conducted.  This means there are more costs and lenders will not cover these.

Having said that, all costs are added back on to the new mortgage for a refinance, so you’re never immediately out of pocket.

At GTA Mortgage Pros the costs are our speciality.  We not only show you all the hidden costs and fees in your mortgage but we’ll calculate for you whether or not it’s actually worth you refinancing when you consider the potential penalty

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