Renewal vs. refinance: which one do you need?

These two words get used interchangeably and they should not be. They are different transactions with different costs, different paperwork, and different qualifying rules.

Renewal

Your term ended. The balance stays exactly as it is, and you agree to a new rate and term. No new money, no appraisal, and no penalty. Your existing lender will mail you an offer four to six months out, and that offer is almost never their best rate — it is priced on the assumption that you will sign it because signing is easy.

Refinance

You are changing the mortgage itself: pulling equity out, consolidating debt, adding or removing a person from the title, or re-amortizing to lower the payment. You can borrow up to 80% of the home's value. A refinance means requalifying, usually an appraisal, and legal work — and if you do it mid-term, a penalty.

The straight switch

There is a third option most people never hear about: moving your existing balance to a different lender at renewal, unchanged. Same amount, same or shorter amortization. Since late 2024, borrowers doing an uninsured straight switch at renewal no longer have to pass the stress test again with the new lender — which removed the single biggest reason people felt stuck with their bank.

Penalties, if you are breaking mid-term

• Variable rate — almost always three months' interest. Predictable, and usually modest.
• Fixed rate — the greater of three months' interest or the interest rate differential. IRD calculations vary enormously between lenders, and at a big bank they can run five figures.

Before you break anything, ask me to price the penalty against the savings. Sometimes it is obviously worth it. Sometimes waiting four months is worth $8,000.

General information only, not financial advice, and not an offer of credit. Figures and program limits are current at the time of writing and do change — confirm the details that apply to your file with me before you act on them.

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