Your mortgage renewal is one of the most important financial decisions you make every few years, yet most Albertans spend less time on it than they do choosing a new phone. The average homeowner simply signs the renewal letter their current lender sends 120 days before maturity, accepting whatever rate is offered.
This is a costly mistake. Lenders know that inertia is powerful — most people will not shop around — so renewal rates are often 0.3% to 0.5% higher than the best available rates in the market. On a $400,000 mortgage, that difference costs you approximately $800 to $1,400 per year.
But renewal is about more than just rate shopping. It is an opportunity to reassess your entire mortgage structure, pull equity if you need it, consolidate debt, or switch to a lender with better features. This guide covers everything Alberta homeowners need to know about mortgage renewals, refinancing, and making the right choice for your financial situation.
Understanding Mortgage Renewal vs Refinance
The terms renewal and refinance are often used interchangeably, but they are different processes with different costs and implications.
Mortgage Renewal
A renewal happens when your mortgage term ends (typically after 5 years) and you need to negotiate a new term. Your mortgage balance remains the same, you stay with the same lender or switch to a new one, and no legal work is required if you stay with your current lender.
Key characteristics of renewal:
- No appraisal required
- No legal fees if staying with the same lender
- Can switch lenders without penalty at maturity
- Mortgage balance stays the same (plus or minus regular principal payments)
- Income and credit re-qualification may not be required if staying with the same lender
Mortgage Refinance
A refinance involves breaking your existing mortgage before maturity or changing the mortgage amount at renewal. This triggers legal work, requires re-qualification, and usually involves an appraisal.
You are refinancing if you:
- Break your mortgage before the term ends
- Increase your mortgage balance to pull equity out
- Switch from a variable to fixed rate (or vice versa) before maturity
- Consolidate debt into your mortgage
- Add or remove someone from the mortgage
Costs of refinancing:
- Penalty to break your existing mortgage (if before maturity)
- Legal fees ($1,000 to $1,500)
- Appraisal fee ($300 to $500)
- Possible lender discharge fees ($300 to $500)
The rest of this guide separates renewal strategies from refinance strategies so you know exactly which path applies to your situation.
The Renewal Timeline: What Happens When
Understanding the timeline helps you maximize your leverage and avoid getting locked into a bad rate.
120 Days Before Maturity
Your lender is required to send you a renewal statement at least 120 days before your mortgage matures. This letter will include:
- Your current mortgage balance
- The offered renewal rate
- The new payment amount
- Terms and conditions of the renewal
Critical point: The rate offered in this initial letter is almost never the best rate available. It is a starting point for negotiation, and it is usually higher than what new customers get.
120 to 30 Days Before Maturity
This is your shopping window. You can approach other lenders, get rate quotes, and compare terms without any penalty. Your current lender cannot charge you a penalty for switching at maturity — it is your legal right.
What to do during this window:
- Contact a mortgage broker to see what rates are available across multiple lenders
- Pull your credit report to ensure there are no surprises
- Assess whether you need any additional features (more pre-payment options, portable mortgage, etc.)
- Decide if you want to refinance to pull equity or consolidate debt
30 Days Before Maturity
If you are switching lenders, the new lender needs at least 30 days to process your application, get documentation, and arrange for the switch. Leaving it later than this creates time pressure and limits your options.
Maturity Date
Your old mortgage term ends, and your new term begins. If you are switching lenders, the new lender pays out your old mortgage and registers a new one. If you are staying with your current lender, the new term simply starts automatically.
Mortgage Penalties: The Cost of Breaking Early
If you need to refinance before your term ends, you will pay a penalty. Understanding how penalties are calculated is critical because they can range from a few hundred dollars to $20,000+ on the same mortgage.
Three-Month Interest Penalty
This is the simpler and usually cheaper penalty calculation. It is exactly what it sounds like: three months of interest on your remaining mortgage balance.
Example:
- Mortgage balance: $350,000
- Interest rate: 4.5%
- Penalty = $350,000 × 4.5% ÷ 12 × 3 = $3,938
Who pays three-month interest:
- Variable rate mortgages (almost always)
- Some smaller lenders and credit unions
- Mortgages broken at maturity (no penalty)
Interest Rate Differential (IRD) Penalty
IRD is the more complex and often much more expensive penalty. It is designed to compensate the lender for the interest they will lose because you are breaking the mortgage early.
IRD formula (simplified): (Your Rate - Current Rate for Remaining Term) × Remaining Balance × Months Remaining ÷ 12
Example:
- Original rate: 5.5%
- Current rate for remaining term (30 months): 4.0%
- Remaining balance: $350,000
- Months remaining: 30 months
IRD = (5.5% - 4.0%) × $350,000 × 30 ÷ 12 = $13,125
In this scenario, the IRD penalty is more than 3× the three-month interest penalty.
Who pays IRD:
- Fixed rate mortgages with big banks (almost always)
- Monoline lenders (most use IRD)
- When breaking a fixed term significantly before maturity
How Lenders Manipulate IRD Calculations
Here is where it gets ugly. The "current rate for remaining term" in the IRD formula is not a rate you can actually get — it is a rate the lender chooses, often their deeply discounted posted rate, which inflates the penalty.
Example of rate manipulation:
- You have 30 months left on your mortgage at 5.5%
- The best 3-year fixed rate available to customers today is 4.8%
- But the lender uses their posted 3-year rate of 5.8% minus a 2.2% discount = 3.6% as the "current rate"
- This increases your IRD penalty because the difference between 5.5% and 3.6% is larger than the difference between 5.5% and 4.8%
This is legal, and it is buried in your mortgage contract. It is also why some borrowers face $15,000+ penalties to break a mortgage they thought would cost $4,000 to exit.
Avoiding High Penalties
Choose the right mortgage upfront:
- If there is any chance you will sell or refinance in 3 years, consider a variable rate (three-month penalty) or a 3-year fixed instead of 5-year fixed
- Ask your broker to calculate the IRD penalty scenario before you sign
- Smaller lenders and credit unions often have more borrower-friendly penalty calculations
Use penalty-free prepayment options:
- Most mortgages allow 10% to 20% annual prepayment without penalty
- If you are breaking to access equity, see if you can pull what you need through a HELOC instead
Should You Stay or Switch Lenders?
At renewal, you have three options: stay with your current lender, switch to a new lender, or refinance to access equity or consolidate debt. Here is how to decide.
When to Stay With Your Current Lender
Stay if:
- Their offered rate (after negotiation) is within 0.10% of the best available rate
- You value the convenience of not switching
- Your mortgage has features you cannot replicate elsewhere (specific prepayment options, unique portability terms)
- Your income or credit situation has weakened and you might not qualify elsewhere
Negotiation tip: Call your lender and tell them you have a better offer elsewhere (even if you do not yet). Most lenders have retention departments authorized to beat external offers by 0.10% to 0.15%. Get the improved rate in writing before you commit.
When to Switch Lenders
Switch if:
- You can save 0.20% or more on your rate
- You need better prepayment flexibility or other features
- Your current lender has poor customer service
- You want to consolidate multiple mortgages or access a HELOC
Switching costs: If you switch at maturity, there is no penalty from your old lender. The new lender may cover your legal fees and appraisal (usually if your mortgage is $200,000+). Confirm these details before committing.
Switching Lenders: The Process
- Apply with new lender 60-90 days before maturity — Give them time to process
- Provide required documentation — Income verification, credit check, property details
- Get approval and rate commitment — Locked in writing
- Lawyer handles the switch — Old mortgage discharged, new mortgage registered
- New term begins on your maturity date — Seamless transition
The entire process takes 3 to 4 weeks if your documentation is in order.
Refinancing to Pull Equity Out
One of the most powerful uses of renewal is accessing your home equity. If your home has appreciated or you have paid down your mortgage significantly, refinancing lets you pull that equity out in cash.
How Much Equity Can You Access?
In Canada, you can refinance up to 80% of your home's appraised value. The remaining 20% must stay as equity.
Example:
- Current home value: $600,000
- Maximum refinance amount: $600,000 × 80% = $480,000
- Current mortgage balance: $320,000
- Maximum equity you can pull out: $480,000 - $320,000 = $160,000
Common Reasons to Pull Equity
Home renovations — Kitchen, bathroom, or basement renovations that increase property value. Mortgage interest rates (currently 4.5% to 5.5%) are far lower than personal loans (8% to 12%) or credit cards (19%+).
Debt consolidation — If you have $40,000 in credit card debt at 19% and a car loan at 7%, consolidating into your mortgage at 5% can save you $400+ per month and simplify your payments.
Investment property down payment — Use equity from your primary residence to fund the down payment on a rental property.
Education costs — Funding post-secondary education at mortgage rates instead of student loan rates.
Emergency expenses — Major medical costs, family support, or other unforeseen needs.
The Cost of Refinancing to Pull Equity
If you refinance before your term ends, you will pay:
- Mortgage penalty (three-month interest or IRD, as calculated above)
- Legal fees ($1,000 to $1,500)
- Appraisal ($300 to $500)
Do the math: If you are pulling $50,000 in equity but paying a $12,000 IRD penalty plus $1,500 in legal and appraisal fees, your net access is $36,500. Is it worth it? Sometimes yes (if consolidating high-interest debt), sometimes no.
HELOC as an Alternative to Refinancing
A Home Equity Line of Credit (HELOC) is a revolving credit line secured against your home equity. You can borrow and repay as needed, up to your approved limit.
HELOC advantages:
- No need to break your mortgage
- Access equity without triggering penalties
- Pay interest only on what you use
- Reusable as you pay it down
HELOC disadvantages:
- Higher interest rates than mortgages (currently Prime + 0.5% to Prime + 1.0%, around 6.5% to 7.0%)
- Variable rate only (no fixed option)
- Requires discipline — easy to overspend
Many Alberta homeowners use a combination: a fixed-rate mortgage for the bulk of their financing and a HELOC for flexibility and emergency access.
Debt Consolidation Through Refinancing
This is one of the most common and most effective uses of mortgage refinancing. If you are carrying high-interest debt, consolidating it into your mortgage can save thousands per year.
When Debt Consolidation Makes Sense
You should consider it if:
- You have $15,000+ in credit card debt at 19%+ interest
- You have multiple debts (car loan, line of credit, credit cards) and want to simplify
- Your monthly debt payments are straining your cash flow
- You have at least 20% equity in your home
Example:
- $30,000 credit card debt at 19.99% = $500/month minimum payment (mostly interest)
- $20,000 car loan at 6.5% = $350/month
- Total monthly debt payments: $850/month
Consolidate into mortgage at 5.0%:
- $50,000 added to mortgage = approximately $295/month (on a 25-year amortization)
- Monthly savings: $555/month
- Annual savings: $6,660
The Risks of Debt Consolidation
You must change your spending habits. If you consolidate $30,000 of credit card debt into your mortgage and then run up another $30,000 on those same cards over the next two years, you are now in a worse position — you have $30,000 in new credit card debt plus a higher mortgage balance.
You are converting unsecured debt into secured debt. Credit card debt is unsecured — if you cannot pay it, they cannot take your house. Mortgage debt is secured by your home. If you default, you lose the house. Only consolidate debt if you are committed to fixing the underlying spending issues.
30-Year Amortization at Renewal
As of late 2024, 30-year amortizations are now available for first-time buyers purchasing new builds. But what about existing homeowners at renewal?
Currently, 30-year amortizations at renewal are only available if:
- You are refinancing (not just renewing), OR
- You are switching to a new lender who offers 30-year terms, OR
- You qualify as a first-time buyer purchasing new construction (rare at renewal)
Why extend your amortization to 30 years?
- Lower monthly payments — On a $400,000 mortgage at 5.0%, switching from 25 to 30 years reduces your payment by approximately $225/month
- Improved cash flow — Frees up monthly budget for other priorities
- Qualification help — If your income has dropped or debts have increased, extending amortization can help you pass debt ratio requirements
Why you might not want 30 years:
- More total interest paid — You pay interest for 5 extra years
- Slower equity build — Principal paydown happens more slowly
- Higher total cost — Over the life of the mortgage, 30-year costs significantly more than 25-year
Most financial advisors recommend the shortest amortization you can comfortably afford. But if cash flow is tight or you are consolidating debt, the 30-year option can provide meaningful monthly relief.
Fixed vs Variable at Renewal
Every renewal forces the same question: fixed or variable?
Fixed Rate Mortgages
Advantages:
- Payment certainty — your rate and payment never change for the term
- Peace of mind — no need to track Bank of Canada rate decisions
- Easier budgeting — you know exactly what you will pay
Disadvantages:
- Higher penalties if you need to break early (IRD)
- You do not benefit if rates drop during your term
Current 5-year fixed rates in Alberta: 4.5% to 5.2%
Variable Rate Mortgages
Advantages:
- Lower penalties (three-month interest)
- Historically, variable rates have outperformed fixed over long periods
- You benefit immediately if rates drop
Disadvantages:
- Payment uncertainty — your rate adjusts with Prime rate changes
- Risk of payment increases if rates rise
- Requires higher risk tolerance
Current variable rates in Alberta: Prime - 0.8% to Prime - 0.3% (approximately 5.2% to 5.7% based on current Prime of 6.0%)
My Take on Fixed vs Variable in 2025
As of early 2025, fixed and variable rates are nearly identical. Historically, this means variable becomes the better bet over time, but it requires the stomach to handle rate fluctuations.
Choose fixed if:
- You budget tightly and cannot handle payment increases
- You are already stretching to afford the mortgage
- You plan to break the mortgage in 2-3 years (fixed penalties are now comparable to variable in short timeframes)
Choose variable if:
- You have financial flexibility
- You believe rates will trend downward over the next 2-3 years
- You might break the mortgage early (three-month penalty is far cheaper than IRD in most cases)
Alberta-Specific Renewal Considerations
Strong Equity Growth in Calgary
Calgary home prices increased approximately 12% in 2024 and another 8% expected in 2025. This means many Alberta homeowners who purchased 5 years ago have significant equity gains, opening up refinancing and HELOC options that may not have been available at their last renewal.
No Land Transfer Tax = Lower Switching Costs
If you switch lenders at renewal in Alberta, you avoid the land transfer tax that would apply in Ontario or BC. This makes switching lenders more attractive here than in other provinces.
Competitive Lender Market
Alberta has a deep mortgage market with strong competition among banks, credit unions, and monoline lenders. This competition benefits you at renewal — there are always multiple lenders competing for your business.
Renewal Checklist: Your Step-by-Step Plan
120 days before maturity:
- Receive renewal statement from current lender
- Pull your credit report (free at Equifax or Borrowell)
- Assess your home's current value (check recent comparables on Realtor.ca)
- Decide if you need to access equity or consolidate debt
90 days before maturity:
- Contact a mortgage broker to shop rates across multiple lenders
- Get pre-approvals from 2-3 lenders
- Calculate penalty costs if you are considering early refinance
- Review your current mortgage features and prepayment options
60 days before maturity:
- Make your decision: stay, switch, or refinance
- Lock in your rate with your chosen lender
- If switching, provide all required documentation
- If staying, negotiate your current lender's rate down
30 days before maturity:
- If switching, lawyer begins processing the switch
- Confirm all details are correct (rate, term, payment amount, features)
- Set up automatic payments with new lender if switching
Maturity date:
- Old term ends, new term begins
- Confirm first payment is scheduled correctly
- Save a copy of your new mortgage documents
Final Thoughts
Your mortgage renewal is not just an administrative formality — it is a financial optimization opportunity that comes around every 3 to 5 years. The difference between a passive renewal (signing whatever your lender offers) and an active renewal (shopping, negotiating, and structuring correctly) is thousands of dollars and potentially better financial flexibility.
In Alberta, with strong property value growth, no land transfer tax, and a competitive lending market, homeowners have significant leverage at renewal. Use it.
Whether you are simply looking for the best rate, need to access equity for renovations, or want to consolidate debt and simplify your finances, renewal is the time to make those moves. Do not wait until the last minute, and do not assume your current lender is offering you their best rate.
Questions about your upcoming mortgage renewal or refinancing options? Contact Jay: jaysinghmortgage@gmail.com or 403.409.1126.
