Most homeowners on Vancouver Island renew their mortgage at least once. It's a great opportunity to realign your mortgage with your lifestyle and financial goals. But what exactly does renewing your mortgage involve, and how can it benefit you? Or would it be a better decision for you to access the equity in your home which is also an option at renewal time? 

When your mortgage renewal date rolls around, the chances are that your life looks a bit different from when you first signed those mortgage papers. Here's a quick guide to renewing and refinancing to help you make the most of this important milestone in your home ownership journey. 

What is renewing?

Renewing your mortgage simply means renewing your options and rate. You can also take advantage of the opportunity to adjust the finer details of your mortgage—including shortening its lifespan—without paying any penalties.

Good to know: You get another chance to make changes to your mortgage. You have the option of making a lump sum payment on your mortgage anniversary date, and you can change your payments penalty-free once a year on or after your mortgage anniversary.. Read How to make the most of your mortgage renewal.

Why renew?

A lot might have changed in your life since you first took out your mortgage. Renewing is a chance to press the "reset" button on your mortgage terms to ensure they better reflect your current life and future goals.

Changes you can make without incurring penalties include:

• Securing a lower interest rate to save money 
• Making a lump sum payment to shorten your journey to a mortgage-free life
• Increasing your monthly or biweekly payments to pay down your mortgage faster
• Reducing your payments to help you budget for other things
• Changing the frequency of your payments, for example from monthly to bi-weekly to reflect when you get paid

The other good news is that, because you are just renewing your existing mortgage, you don't need to fill out a new application and requalify. It's very quick and easy to do, with no penalties.

Good to know: You don't even have to wait for your renewal date to get a better interest rate. Renewing early can help you lock in to a lower interest rate with no penalty. 

Who should renew?

Renewing is a great option if:

• You don't want or need to borrow more money through your mortgage 
• You want to extend the term of your mortgage and have the option to make changes
• You like to keep things simple, as you don't need to reapply and requalify

The alternative to renewing is refinancing, which effectively means taking equity out of your home to free up some cash to use for other purposes. Let's take a look at what this involves, and why you might want to consider it.

What is refinancing?

One of the benefits of buying a home with a mortgage (versus, for example, renting) is that buying lets you build home equity. Home equity is basically the difference between how much your home is worth and how much you owe on the mortgage. For example, if your home is valued at $400,000 and you have $200,000 left to repay, you have home equity of $200,000. 

Your mortgage renewal date is an opportunity to make the most of any equity gain by refinancing. Refinancing at this time lets you increase your mortgage up to 80% of your home’s appraised value without paying a penalty.*  

If your home is reappraised at $400,000, that means you might be able to borrow another $120,000 for a total new mortgage of $320,000. This could let you release $120,000 in home equity to spend on other things. In this situation, you do need to requalify and have your home's value reappraised. 

Why refinance?

Refinancing delivers a number of benefits. For starters, doing it at your renewal date lets you avoid paying a penalty. Keep in mind that if you blend your rate, then you can refinance before the term ends. It's also an opportunity, like renewing your mortgage, to find a lower interest rate. 

Most people refinance to release money to pay for a large expense, such as:

• Home renovations, which can also raise the value of your home
• A child's education or other major life expense
• Debt consolidation, such as paying down high-interest loans
• Starting a business or an investment opportunity

Who should refinance? 

Consider refinancing at your renewal date if:

• You would like additional money to pay for a large expense
• You don't mind increasing your mortgage debt
• You want to avoid paying a penalty for refinancing at another time

It's almost renewal time. What's next? 

A good first step is to review your finances to clarify your current financial situation and future goals. A CCCU trusted advisor or lending expert can help you with that. You can also use our mortgage calculator to crunch some numbers around renewing or refinancing.

If a better rate of interest is your main priority, remember you can renew early to lock in to a lower interest rate with no penalty. You can learn more about  renewing and refinancing your mortgage here.