Mortgage Renewal: A Strategic Moment Not to Be Overlooked

In Canada, the vast majority of mortgages are structured with one-to-five-year terms, with the five-year term being the most common. At each term maturity, the borrower must renew their mortgage, which presents an opportunity to renegotiate conditions, switch lenders, and adapt to the current rate environment. According to the Financial Consumer Agency of Canada (FCAC), too many borrowers simply sign their current lender's renewal offer without shopping around, potentially leaving thousands of dollars on the table.

Understanding Interest Rate Cycles

Interest rates move in cycles influenced by the Bank of Canada's monetary policy, inflation, economic growth, and global conditions. A complete cycle typically includes a rising phase (monetary tightening to fight inflation), a plateau (stable rates during an observation period), and a declining phase (easing to stimulate the economy). Recognizing the current position in the cycle is essential for optimizing your renewal strategy.

• Rising phase: rates are climbing progressively — a fixed rate provides protection against future increases
• Plateau: rates are stable — carefully compare fixed and variable, the spread between them is a key indicator
• Declining phase: rates are falling — a variable rate may let you benefit from reductions over time
• Uncertainty: direction is unclear — a shorter term (one to three years) offers flexibility to reposition sooner

The Rate Hold Window: Your Strategic Tool

Most Canadian lenders offer the ability to lock in (hold) a mortgage rate 90 to 120 days before the renewal or funding date. This rate guarantee works like a financial option: if rates rise during the hold period, you keep your guaranteed rate. If rates fall, several lenders offer an automatic or on-request downward adjustment. Your mortgage broker can lock in a rate with multiple lenders simultaneously to maximize your chances of getting the most competitive rate at the time of finalization.

Renewal Strategies Based on the Rate Context

1. Assess your current situation: Note your current rate, remaining balance, term maturity date, and financial goals. Do you need flexibility? Do you want to pay down faster? These factors will influence your choice of term and rate type.
2. Analyze the position in the cycle: Review recent Bank of Canada announcements and major bank forecasts. If rates appear to have peaked, a variable rate or shorter term could be advantageous. If rates are low and likely to rise, a five-year fixed rate offers certainty.
3. Lock in a competitive rate early: As soon as you spot a competitive rate (90 to 120 days before maturity), ask your broker to lock it in. You can still get an adjustment if rates drop further, but you'll be protected against increases.
4. Compare at least three offers: Don't limit yourself to your current lender. An AMF-licensed broker has access to dozens of lenders including banks, Desjardins caisses, trust companies, and alternative lenders. The rate difference between the best and worst offer can represent thousands of dollars over a five-year term.
5. Consider a lender transfer: At renewal, you can transfer your mortgage to another lender without penalty. The new lender typically covers the appraisal and legal fees. This is a particularly attractive option if your current lender isn't offering a competitive rate.

The Hybrid Approach: Combining Fixed and Variable

Some Canadian lenders offer hybrid products that combine a fixed-rate portion and a variable-rate portion within the same mortgage. This approach allows you to partially benefit from rate decreases while maintaining a degree of stability. For example, you could place 60% of your mortgage at a fixed rate and 40% at a variable rate. During periods of uncertainty in the rate cycle, this diversification strategy can be wise. Discuss the ideal proportion with your broker based on your risk tolerance and current market conditions.