If you’re a homeowner, you’ve probably come across the terms renewing and refinancing your mortgage—but what do they really mean? It’s easy to mix them up, but they serve different purposes. Let’s break it down.
Renewing (or Switching) Your Mortgage:
Think of a renewal as a fresh start with your existing mortgage. When your term is up—often after five years—you’ll need to decide what to do next.
- Renewal: Your current lender offers you a new term with updated rates and conditions.
- Switch/Transfer: You move your mortgage to a different lender, usually to take advantage of a lower interest rate. The structure of your mortgage stays the same, but a better rate could mean big savings.
In both cases, you’re keeping your mortgage amount and repayment setup as-is—you’re just locking in a new deal.
Refinancing: Tapping Into Your Equity:
Refinancing is a different game. Instead of simply renewing your mortgage, you’re replacing it with a new one—often for a larger amount. This lets you access the equity you’ve built in your home, essentially turning it into a financial resource.
Why might you refinance?
- Consolidate high-interest debt
- Fund home renovations
- Invest in new opportunities
With refinancing, you may also secure a better rate, but the key difference is that you’re borrowing more than what you currently owe. This can offer greater financial flexibility, but it may also extend your mortgage term or increase your payments.
Which Option Is Right for You?
If you’re satisfied with your mortgage and just want to secure a better rate, renewing or switching is a simple and cost-effective choice.
If you want to leverage your home’s value for other financial goals, refinancing might be the way to go.
What to Keep in Mind:
Both switching lenders and refinancing require a full mortgage approval process. Unlike a renewal with your current lender, which typically involves minimal paperwork, switching or refinancing means you’ll need to reapply entirely. This includes submitting your financial documents, undergoing a credit check, and meeting current lending requirements. Essentially, you’ll go through the same process as when you first applied for your mortgage, so being prepared is key. You can switch or refinance anytime, but doing so before your term ends will likely trigger a prepayment penalty. If you wait until your term expires, you can avoid that penalty. It’s a good idea to contact me about three months before your renewal date so we have plenty of time to explore the best mortgage options for you.
Both options have their benefits, and choosing the right one depends on your situation. If you’re unsure, I’m here to help you navigate the process and find the best solution for your needs!