When it comes time to renew your mortgage, you have two main options: you can either renew your existing mortgage or you can refinance to a new mortgage. Both options have their own pros and cons, and the right choice for you will depend on your individual circumstances. Here is what you need to know about mortgage renewal vs refinance, and the advantages of refinancing at mortgage renewal time.
Mortgage renewal vs refinance: what's the difference?
When you renew your mortgage, you are essentially extending your existing mortgage for another term. This means that your remaining mortgage amount and amortization will continue to be the same. You can choose the term length you would like to renew into and your new interest rate will depend on the current interest rates at that time.
On the other hand, when you refinance your mortgage, you are replacing your existing mortgage with a new one. This means that you will have to go through the application process again, and you may have to pay closing costs and other fees (sometimes your new lender will cover all costs). However, refinancing can also give you the opportunity to increase your mortgage amount or change the remaining amortization.
Advantages of refinancing at mortgage renewal time
Refinancing a mortgage at renewal time can offer several advantages for homeowners in Canada. One of the main benefits is that there is no penalty for refinancing at this time.
Another advantage of refinancing at renewal time is that it can provide homeowners with access to equity in their homes. By refinancing for a higher amount than their current mortgage, homeowners can use the additional funds to pay off high-interest debt or to make improvements to their homes. This can include anything from updating the kitchen or bathroom to adding a new deck or patio.
Accessing equity through refinancing can also provide homeowners with the opportunity to make smart investments or to use the funds as a down payment on a rental property. Investing in RRSPs or TFSAs could help homeowners grow their wealth and secure a better financial future. Alternatively, using the funds for a down payment on a rental property could provide a source of passive income and be a way to diversify a homeowner's investment portfolio.