Paying off a mortgage at renewal? Pros, cons, and tips for 2025

When your mortgage term comes to an end, you face a pivotal decision: renew your mortgage or pay it off in full. For many Canadians, this is a time to reevaluate financial priorities and weigh the benefits of clearing their mortgage debt against continuing to carry it forward.

Understanding your mortgage structure

First, you need to understand the two critical time lengths of your mortgage: the amortization period and the mortgage term. The amortization period is the total time it takes to repay your mortgage in full, often spanning 15 to 30 years. The mortgage term, typically ranging from 1 to 5 years, is the time period during which your interest rate, payment schedule, and other conditions are fixed.

The type of mortgage — open or closed — also affects repayment flexibility. Open mortgages allow full repayment anytime without penalties but often come with higher rates. Closed mortgages, which offer lower rates, charge penalties for early repayment: variable-rate penalties are three months’ interest, while fixed-rate penalties are the greater of three months’ interest or the interest rate differential. Some closed mortgages, however, allow limited lump-sum prepayments.

In the video below, James Laird, co-founder of Ratehub.ca and President of CanWise mortgage lender, discusses some of the pros and cons of variable vs. fixed rates. Even if you're thinking of paying off your mortgage balance in full, it's worth checking it out to see if you might want to explore one of the possibilities outlined by James. 

The advantages of paying off the mortgage at renewal

In cases where borrowers are financially able, they may choose to use a lump sum pre-payment to pay down part or all of their mortgage at renewal time. While not a particularly common approach (few borrowers tend to have that much liquid cash on hand), it can happen, especially for those who may have received an unexpected windfall, perhaps through an inheritance or lottery winnings.

Here are the advantages of paying off your mortgage early​:

• Save on interest costs: By eliminating your mortgage balance, you avoid paying additional interest over the remaining term or amortization period.
• Financial flexibility: Freeing up the funds previously used for mortgage payments allows you to allocate money toward other financial goals, such as investments, retirement savings, or personal pursuits.
• Increased home equity: Once your mortgage is paid off, you fully own your home, giving you complete access to its equity if needed.

Disadvantages of paying off the mortgage at renewal

There are potential disadvantages of paying off the mortgage​ at renewal:

• Liquidity concerns: Tying up a large amount of cash in your home’s equity might leave you without sufficient funds for emergencies or other financial needs.
• Missed tax benefits: If your mortgage interest is tax-deductible (as in some cases, such as for investment properties), paying it off early could mean losing this deduction.
• Prepayment penalties: Depending on your mortgage type, paying it off early could result in penalties, particularly if it's not renewal time or if the lender imposes restrictions.

How to pay off your mortgage in full at renewal time

Whether you have an open or closed mortgage, at renewal time, the mortgage is considered “open” for exactly one day. This is to allow for the process of starting a new mortgage term, whether with the existing lender or a new one. However, it also means that on this day the borrower has the flexibility to pay off as much of their mortgage as they like without having to adhere to the restrictions of their previous mortgage term.

The borrower may choose to pay off their entire mortgage or pay off a chunk before transferring their mortgage to a new lender.

1. Pay off the entire mortgage

Paying off your mortgage in full involves making a lump-sum payment and discharging the mortgage. This process requires a real estate lawyer, who will:

• Obtain confirmation from your lender that the mortgage has been paid in full. In some cases, you may need to make a special request for this confirmation.
• Submit the confirmation to the local land registry office so that they may update your property’s title and remove the lender’s interest in the property from the title.

Once the land registry updates the property’s title, the mortgage is officially discharged, and the borrower is mortgage-free.

2. Pay off a portion and transfer the remaining balance

For this option, you need to bring a cheque to FCT – the closing service that lenders use – a week or so prior to the mortgage’s renewal date. You should have already informed your mortgage agent and new lender that the payout statement will reflect the amount you’ve paid down and the new, lower mortgage amount you’d like funding for.

Switching to a new lender comes with some considerable benefits like finding the lowest possible mortgage rate. You can also get the option to advance cash from your home’s equity and use it for home improvements, post-secondary education, debt consolidation, and more.

Common mistakes to avoid when paying off your mortgage

1. Draining savings

Using all your liquid assets to pay off your mortgage might seem like a smart move, but it can leave you financially exposed. Emergencies, such as unexpected medical bills, home repairs, or job loss, can arise at any time. Without adequate savings, you may need to take on high-interest debt or dip into retirement accounts, jeopardizing your long-term financial security.

Before paying off your mortgage, ensure you have a robust emergency fund that can cover 3–6 months of essential expenses. 

2. Ignoring fees

Paying off your mortgage early doesn’t always mean you’re free of costs. If you’re paying a portion of the mortgage and switching to a new lender, you may incur additional fees such as:

• Setup fees with the new lender 
• Fees to discharge your old mortgage and register your new mortgage
• Transfer or assignment fees from your current lender
• Appraisal fees to confirm the value of your property
• Administration fees
• Legal fees

Factor these costs into your decision to ensure paying off your mortgage early is still beneficial.

3. Not shopping around

Even if you plan to pay off most of your mortgage at renewal, shopping for better rates on any remaining balance is crucial. Your existing lender may not offer the most competitive terms, as they assume you’ll renew without question. By exploring the market or working with a mortgage broker, you might secure a lower rate, saving money over the term of the remaining loan.

Use mortgage comparison tools or consult a broker to evaluate your options and negotiate better terms.

The bottom line

While it is possible to pay off your mortgage at renewal, consider whether your lump sum of money could be put to better use. For example, your lump sum of cash may serve you better if you invest it in the stock market or use it to pay off high-interest credit card debt.

That said, if you’re dreaming of the day when you no longer need to make mortgage payments, paying off your mortgage on your renewal day is possible and may be the right financial strategy for you.

Also read:

• Should I pay down my mortgage or invest?
• Mortgage pre-payment guide
• Should you switch from a variable-rate to a fixed-rate mortgage?
• What happens if your mortgage renewal is denied?
• 5 tips for mortgage renewal time
• The trigger rate: Everything you need to know

*Based on a $700,000 home price, 10% down payment, amortized over 25 years, and a five-year fixed mortgage rate of 4.64% vs. 4.39%.