Generally speaking, if you anticipate your life and your financial situation are going to remain roughly the same for the duration of your new term as they were for the last term, renewal can be an easy choice. If they could be significantly different, refinancing might be a better option.
But the details of each option matter a lot, as does your overall financial situation. It’s a good idea to do a thorough assessment of your finances before you choose to renew or refinance. You should pay particular attention to anything that has changed for you since the start of your most recent mortgage term.

Renewing your mortgage: Five questions to help assess your situation before renewing

Since renewing maintains your current mortgage contract, the process of renewing is simpler and easier than refinancing. For example, you don’t need to go through a full credit application if you renew.

But renewing still offers ways to change your mortgage to better fit your financial situation today. At renewal you could change your mortgage from a fixed to a variable rate, open or closed mortgage (or vice versa), pick a different length of term, pick a different payment amount and payment frequency. You may also choose to apply a lump sum payment to reduce your balance. Before renewing, it’s helpful to answer the following questions so that you can choose the right mortgage option:

1. Do you plan to sell or move within the next five years?

This can help you decide what term makes the most sense right now. If you might move in the next few years, a shorter term can give you more flexibility. If you plan to remain in your current home, a longer term might work better.

2. Is your priority to pay off your mortgage as quickly as possible?

If your answer to this question is yes, then you should consider the following mortgage options at the time of renewal:

• Payment schedule: Switching to an accelerated bi-weekly payment schedule (instead of monthly) means you make an extra payment each year, which can significantly reduce your amortization period.
• Payment amount: Increasing your payment amount, even by a small amount, can make a big difference over time in how quickly you pay off your mortgage and how much interest you save.
• Pre-payment allowances: Taking advantage of pre-payment options allows you to make additional payments towards your principal, reducing the total interest paid and shortening the life of your mortgage. Most Alberta mortgage lenders allow you to make a 10-20% lump sum payment per year and increase your monthly payments from 10-20% per year.
• Variable rate mortgage: While not guaranteed, a variable rate mortgage may offer lower interest rates than a fixed rate mortgage at times, potentially saving you money on interest and allowing you to pay off your mortgage faster. Most variable rate mortgages allow you to lock into a fixed rate during your mortgage term, which could be beneficial in a declining rate environment.
• Open rate mortgage: Open mortgages allow you to pay off your mortgage without penalty. This could potentially reduce the amount of interest you pay and shorten your amortization period. Something to consider is that open mortgage rates are significantly higher than closed mortgage rates.

3. How does your risk tolerance play a role in your mortgage?

This question helps to evaluate your risk tolerance and your fit for a variable-rate or fixed-rate mortgage. If your risk tolerance can withstand fluctuations in interest rates, a variable-rate mortgage might be a good fit for you. Variable-rate allows you to benefit from rate decreases during market fluctuations. Most variable-rate mortgages allow you to lock into a fixed-rate during your mortgage term. If you prefer stability and predictability with your rate and payment, a fixed-rate mortgage may be a better fit for you.

4. Do you have any high-interest debt you'd like to consolidate with your mortgage?

Your mortgage is a relatively low-interest source of borrowing. Refinancing your mortgage to consolidate high-interest debt on your mortgage can simplify your payments and save you money on interest. An ATB mortgage advisor can help you with this.

5. Are you planning any major renovations or home improvements in the near future?

Accessing the equity you’ve built in your mortgage can help finance major home projects and help you pay less interest. The right tool for this could be a home equity line of credit, a second mortgage, or refinancing your current mortgage to increase its amount.

The benefits of refinancing: Accessing the equity from your home

Refinancing is essentially creating a new mortgage. It’s a great way to access the equity you’ve built in your home, for instance to consolidate debt to pay less interest. Refinancing is often done when a mortgage approaches the end of its term, but you can refinance at any time in your mortgage’s term.

That means you could do something like change the amortization period. If your household income has decreased since your last mortgage renewal, lengthening the amortization could lower your mortgage payment.

If you have a major expense in your future, like home renovations, sending a child to university, or even consolidating existing debt, accessing the equity in your home in this way can help you borrow the money you need at a low rate of interest.

Finally, refinancing allows you to change the names on a home’s legal title. This may be relevant in the event of divorce or death.

How can I know what’s best for me?

Those considering a refinance should reach out to a mortgage advisor as soon as possible because that process will take longer than a renewal. If you’re not sure which mortgage choice is the best one for you right now, that’s also a sign that you probably need some personalized advice from a trusted partner.