Should you renew or refinance?
Figuring out what’s right for you
If you have a mortgage that’s renewing soon, you’ve got some options and probably a few questions. This is a great time to review your current financial situation to help determine the best option for you and your family. Regardless of how long the mortgage term is (6 months to 10 years), and assuming you don’t plan to pay it off in full, you’ll have two choices: Renew or Refinance. Here’s what you need to know:
You'll get a letter or an email reminding you of your upcoming renewal and how easy it is to renew with the same mortgage terms you had before. These reminders typically arrive several months ahead of your scheduled renewal date, and give you the option to renew early in case rates are expected to go up.
Options
Option 1: Renewing your mortgage
When you renew your mortgage, you agree to stay with your current lender for another term. The terms and conditions of your mortgage generally stay the same and you'll be offered the current interest rate, for a specified term.
If you're happy with your current mortgage and your research suggests you are getting good value for your money, and if this solution still aligns with your current financial goals, you may have no reason to change your plans.
Option 2: Refinancing your mortgage
Refinancing can take place at any time during your mortgage term. You can refinance because you want to lower your monthly payments by securing a new mortgage rate and a new amortization period. Or, you can refinance because you want to borrow some more money and add it to the amount you currently owe on your mortgage.
You can refinance your mortgage at any time throughout your term, but you may be subject to penalties if you do it before the term expires.
Do I pay penalties if I refinance?
When you refinance your mortgage or pay it off ahead of schedule, you may have to pay a mortgage prepayment penalty. A typical prepayment fee is the greater of 3 months' interest or the penalty called the "Interest Rate Differential" (IRD). Some lenders charge additional fees on top of the IRD. A Meridian Mortgage Specialist will be able to tell you if the cost of fees will outweigh the advantage of acting too soon. It's just one of the ways we help you make more informed decisions.
Renew or refinance? What’s best for you?
| Your options | Renewing your mortgage | Refinancing your mortgage |
|---|---|---|
| When can I do it? | Renewals only happen at the end of a mortgage term. Terms can be anywhere from six months to 10 years. | You can refinance your mortgage at any time but there may be fees if you are not close to your scheduled renewal date. |
| How does it work? | You renew the mortgage you have today with the same terms and conditions, at the current interest rate. | A new mortgage is created and you may have to go through the steps of requalifying if the amount has gone up or your financial situation has changed. |
| Does it cost money? | No. You can simply renew your existing mortgage at no cost to you. | Yes. You may have to pay at least some of the legal and administrative costs of creating a new mortgage. Is it worth it? Learn more about when it makes sense to refinance |
| What should I do? | Renew if you are content with your provider and if it still aligns with your current financial goals. Before you renew, shop around to see if you can get a better deal. Ask about interest rates and options to pay your mortgage off faster. | You can refinance in order to create a new, more affordable mortgage. Be sure you understand the long-term cost of this decision. Refinance when you want to borrow more money. Common reasons are:
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