Using Your Mortgage Renewal to Restructure Your Finances

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Renewal: A Golden Opportunity to Restructure Your Finances

Too many borrowers view mortgage renewal as a simple administrative formality consisting of signing a new rate and term agreement. In reality, renewal is one of the rare moments when you can substantially modify the structure of your mortgage without paying a penalty, and sometimes without additional fees. It is the ideal opportunity to reassess your overall financial strategy and adapt your mortgage to your current situation.

Modifying the Amortization Period

Adjusting the amortization period is one of the most powerful levers at your disposal at renewal. If your income has increased since the last term, shortening the amortization accelerates your mortgage repayment and significantly reduces the total interest paid. Conversely, if you are going through a more challenging financial period or want to free up cash for other goals, extending the amortization reduces the monthly payment.

Consolidating High-Interest Debt

Renewal is also the time when many homeowners consider consolidating their consumer debts into their mortgage. Credit card debt (often at 19% to 22%), auto loans (5% to 8%), and personal lines of credit (7% to 10%) cost far more in interest than a mortgage (4% to 5%). By consolidating, you reduce the weighted average interest rate across all your debts.

Important Rules for Consolidation

Debt consolidation into the mortgage constitutes a refinance in OSFI's eyes. The loan-to-value ratio must not exceed 80%, meaning you need at least 20% equity in your property.
Notary fees ($1,000 to $2,000 in Quebec), appraisal fees ($300 to $500), and possibly discharge fees will apply since the mortgage amount changes.
Financial discipline after consolidation is crucial. The most common mistake is resuming credit card use after rolling them into the mortgage, creating a cycle of increasing debt.
While the interest rate is lower, the debt is spread over a much longer period (the mortgage amortization). It may be advisable to increase monthly payments to compensate for this effect and avoid paying more total interest.

Other Possible Restructuring at Renewal

Switch from a fixed rate to a variable rate (or vice versa) to adapt to new market conditions or a change in your risk tolerance.
Split the mortgage into multiple tranches with different terms to diversify rate risk (staggering strategy).
Add or modify prepayment privileges to accelerate repayment.
Change payment frequency (monthly, bi-weekly, accelerated weekly) to save on interest and pay down the mortgage faster.

The Support of a Mortgage Broker

Mortgage restructuring at renewal involves complex calculations and financial trade-offs that deserve professional analysis. An AMF-certified mortgage broker will examine your entire financial situation, including your income, debts, risk tolerance, and medium- to long-term goals. They can model different restructuring scenarios and present a quantified comparison of each option. This service is free for the borrower since the lender pays the broker's commission. Take advantage of this expertise to transform your renewal into a genuine financial optimization strategy.

Frequently Asked Questions

Can I change my amortization period at renewal?

Yes. Renewal is one of the simplest times to modify your amortization period. If you stay with the same lender and do not change the balance, you can generally shorten or extend the amortization as needed. For a transfer to a new lender, the maximum amortization is 25 years for an insured loan or 30 years for a conventional loan.

What are the advantages of shortening amortization at renewal?

Shortening the amortization increases your monthly payments, but you pay off your mortgage faster and save considerably on interest. For example, going from 25 to 20 years of amortization on a $300,000 balance at 4.50% can save more than $30,000 in total interest, even though monthly payments increase by approximately $200.

Can I consolidate my debts into my mortgage at renewal?

Yes, but this constitutes a refinance since the mortgage balance increases. OSFI requires a maximum loan-to-value ratio of 80%, meaning it is necessary to have at least 20% equity in your property. Notary fees, appraisal fees, and possibly discharge fees will apply.

Is it advantageous to consolidate credit card debt into my mortgage?

Mathematically, consolidating credit card debt at 19-22% into a mortgage at 4-5% significantly reduces the interest cost. However, you are spreading that debt over a much longer period. The real risk is resuming credit card use after consolidation, ending up with a larger mortgage and new debts. Financial discipline is essential.

What fees apply if I restructure my mortgage at renewal?

If you are only modifying the amortization or term with the same lender without changing the balance, fees are generally zero or minimal. If you are consolidating debts (refinancing), expect notary fees ($1,000 to $2,000 in Quebec), an appraisal ($300 to $500), and possibly discharge fees if you are switching lenders.

Can my mortgage broker help me restructure at renewal?

Absolutely. An AMF-certified mortgage broker will analyze your complete financial situation: mortgage, consumer debts, income, goals, and risk tolerance. They can model different restructuring scenarios and recommend the optimal approach. This service is free for the borrower.