Avoiding 7 common pitfalls during your mortgage renewal

With approximately 1.2 million fixed-rate mortgages set to renew in 2025, many Canadian homeowners are facing a critical financial decision that impacts their monthly payments and long-term financial security. Yet, mortgage renewal is often treated like a routine process rather than an opportunity to secure better terms.

This guide breaks down the most common mistakes borrowers make while renewing a mortgage and how you can avoid them to secure the best possible terms for your renewal.

1. Assuming your current lender offers the best deal

Many borrowers assume that renewing with your current lender is the simplest option. After all, you’ve been making payments on time and they already know your history — so they should offer you the best rate, right? Not necessarily. 

Most banks and lenders count on borrower inertia as many people don’t shop around or even negotiate when it’s time to renew, ending up with a rate much higher than what’s available in the market. Even a small difference in interest rates can translate to thousands of dollars in extra payments over your next term.

Here are some mortgage renewal tips to make sure you’re actually getting a good deal-

• Check advertised rates from major banks, credit unions, and alternative lenders using our rate comparison table.
• Ask your current lender to match or beat a competitor’s rate. Lenders prefer to retain customers rather than lose them.
• Consider working with a mortgage broker who can access exclusive rates and negotiate on your behalf.
• If your lender won’t offer competitive terms, switching to a new lender might save you more in the long run.

2. Focusing only on interest rates and ignoring the fine print

It’s easy to assume that the lowest interest rate equals the best deal. After all, lower rates mean lower monthly payments, right? Not always. A mortgage with a great rate but restrictive terms can end up costing you more in the long run. Here are some hidden costs that could eat into your savings:

• Prepayment penalties – If you plan to make extra payments or pay off your mortgage early, some lenders charge hefty fines on these prepayments that could wipe out your savings from a lower rate.
• Portability restrictions – If you move houses before your mortgage term ends but you don’t have a portable mortgage, you may have to break your mortgage and pay penalties for doing so. 
• Limited flexibility –Some lenders cap how much extra you can pay each year or restrict how often you can increase your payments, making it harder to pay down your loan faster.

3. Waiting until the last minute to renew

Many homeowners assume they can deal with their mortgage renewal once their lender sends a renewal notice, but waiting too long can be costly. If you don’t actively review your options, your lender may auto-renew your mortgage at a higher rate, often without offering the best available terms.

To avoid this, start reviewing your renewal options four to six months before your current term expires. This gives you time to compare interest rates, assess whether your financial situation has changed, and consider switching lenders if a better offer is available. Many lenders allow you to secure a rate hold for up to 120 days, which means you can lock in a competitive rate while still shopping around for better options. If interest rates rise during this period, you’re protected and will still receive the lower rate. If rates drop, most lenders will offer a lower rate before finalizing your renewal. This strategy helps you avoid last-minute pressure to accept whatever your current lender offers.

If you decide to move to a new lender, switching isn’t an overnight process. You'll need to submit a new mortgage application, pass the lender’s approval process, and provide the required documents, such as proof of income, a property tax statement, and your current mortgage details. These steps take time, and if left too late, you could end up renewing with your current lender by default — often at a less favorable rate.

4. Overlooking your changing financial situation

Your financial situation today might not be the same as when you first took out your mortgage. Before committing to a new term, take a close look at your income, expenses, and overall financial stability. If your income has increased, you may want to explore shortening your amortization period or increasing your payment frequency to pay off your mortgage faster and reduce the total interest paid. But if your financial situation is less stable, perhaps due to a job change, new debts, or upcoming expenses, you may need a mortgage with more flexibility, such as lower payments or the option to adjust terms later.

Think about your future financial plans. If you expect major life changes in the next few years, such as starting a family, moving cities, or planning for retirement, your mortgage should reflect those changes. For instance, if you’re nearing retirement, securing a fixed-rate mortgage with predictable payments might offer more stability than chasing a lower variable rate that comes with the risk of fluctuating payments.

5. Not using tools that simplify the renewal process

Many homeowners renew their mortgage without using tools and resources that could save time and money. The right resources help you compare rates, estimate payments, and negotiate better terms. Here are some essential tools to consider:

• Mortgage payment calculator – See how different interest rates and amortization periods affect your monthly payments.
• Mortgage affordability calculator – Determine how much mortgage you can realistically afford based on your income and expenses.
• Mortgage renewal calculator – Check how much your mortgage payments may change when you renew your mortgage, based on today’s available mortgage rates, or a custom rate of your choice.

Mortgage brokers can also play a key role in securing the best renewal terms. According to the Canada Mortgage and Housing Corporation (CMHC), the proportion of consumers using mortgage brokers increased significantly from 43% in 2023 to 48% in 2024, reflecting a growing trend toward seeking expert guidance. Unlike banks, which only offer their own mortgage products, brokers work with multiple lenders to help you find lower rates and more flexible mortgage options. 

6. Not factoring in future interest rate trends

Many homeowners focus only on the current rate without considering where rates might be headed based on inflation, Bank of Canada decisions, and economic conditions. As of January 2025, the Bank of Canada lowered its benchmark interest rate to 3%, marking the sixth consecutive cut. This has already led to lower variable mortgage rates and a drop in fixed mortgage rates.

However, the risk of 25% U.S. import tariffs on Canadian goods is creating new economic risks of a potential recession, job losses, and a weaker Canadian dollar. These tariffs were set to take effect on February 4, 2025, but have been put on hold for 30 days. If implemented, they could force the Bank of Canada to cut rates even further, possibly bringing the overnight rate down to 1.5% by the end of 2025 to counteract economic slowdowns.

At the same time, the potential tariffs have caused bond yields to plunge, leading to lower fixed mortgage rates. The Government of Canada’s five-year bond yield dropped to 2.6% range in early February, prompting lenders to lower their five-year fixed rates to as low as 3.89%.

Also read- Variable or Fixed Mortgage Rates

7. Skipping the opportunity to adjust your mortgage features

Instead of treating renewal as a fresh start, homeowners often default to the same amortization period, payment structure, and lender without exploring options that could offer greater flexibility or long-term savings. Before signing a renewal offer, consider this mortgage checklist of key features:

• Does your payment structure still make sense? If your income has increased, switching to accelerated bi-weekly payments can help pay off your mortgage faster and save thousands in interest. If your budget is tighter, opting for lower monthly payments could provide needed flexibility.
• Would prepayment options help you get ahead? Some lenders allow lump-sum payments of up to 20% of the principal per year, letting you pay off your mortgage faster without penalties.
• Do you need to access home equity? If you've built up equity in your home, renewal is an opportunity to explore a home equity line of credit (HELOC) or refinancing to consolidate debt, invest, or fund major expenses like renovations.
• Could a different amortization period work better for you? A shorter amortization reduces total interest paid, while extending to a longer period lowers monthly payments—both can be strategic depending on your goals.*

* Note: If you switch lenders at renewal and change your amortization period, you’ll have to pass the mortgage stress test again. However, if you keep the same amortization period and loan amount, you won’t be required to requalify under the stress test rules.

The bottom line

Your mortgage renewal is more than just paperwork — it’s a big financial decision that could cost or save you thousands. Don’t simply sign whatever your lender offers. Compare rates, negotiate terms, and rethink your mortgage features to make sure it fits your life today. A little effort now can mean big savings and better flexibility for the future. 

Also read-

• Early mortgage renewal
• What happens if your mortgage renewal is denied?
• 5 tips for mortgage renewal time
• Paying off a mortgage at renewal? Pros, cons, and tips for 2025