Renewal vs Refinance- What’s the difference?
As a homeowner, you’ve likely heard the terms renewing and refinancing thrown around—but what do they actually mean? While they might sound similar, they serve very different purposes. Let’s break it down.
Let’s start with the renewal or switch/transfer option. This is like giving your current mortgage a little makeover. Your mortgage is nearing the end of its term (usually 5 years), and you’ve got a decision to make.
- Renewal: Your existing lender offers you a shiny new term (how long you lock in a rate for)
- Switch/Transfer: You can take that same mortgage but switch to a new lender, hopefully with a lower rate. Your mortgage terms stay mostly the same, but with a new rate, you could save some serious cash
In short, renewing, switching, or transferring means keeping your mortgage balance and structure the same.
Refinancing is a whole different ballgame. This is when you’re looking to tap into your home equity—aka, your home’s piggy bank. It’s when you replace your current mortgage with a new one, often for a higher amount. Essentially, you’re borrowing against the value you’ve built up in your home. Why? Maybe you want to:
- Pay off high-interest debt
- Fund a renovation
- Invest in a big project or opportunity
Refinancing can also involve a new rate and a fresh mortgage term, but the big difference here is that you’re accessing that sweet, sweet equity. You can take out more than what you currently owe, using the extra funds for whatever financial goal you have in mind. It gives you flexibility, but keep in mind you’ll likely extend your mortgage term and increase your payments.
If you’re happy with your mortgage and just want a lower rate, a renewal might be the way to go. It’s simple, straightforward, and could save you money without much fuss. If your current lender’s offer isn’t competitive, you can also explore switching to a new lender for a better deal. If you’ve built up equity in your home and want to put it to work—whether to consolidate debt, renovate, or invest—refinancing could be the right move. How can I help? As your mortgage broker, I take the guesswork out of switching or refinancing by comparing offers, negotiating better rates, and making sure you secure the best mortgage for your situation.
Important things to keep in mind: Both switching lenders and refinancing require a full mortgage approval process. Unlike a simple renewal with your current lender—where paperwork is minimal—switching or refinancing means reapplying from scratch. This includes submitting financial documents, undergoing a credit check, and meeting current lender qualifications. Essentially, it’s the same process as getting a mortgage for the first time, so being prepared is key. You can switch or refinance at any time, but doing so before your term is up will come with a prepayment penalty. If you wait until your term ends, you can avoid that extra cost. A good rule of thumb? Reach out to your broker (me!) about three months before your renewal date so we have plenty of time to explore the best options for you.
At the end of the day, all of these options can help you save money or achieve new goals, and I’m here to help you figure out which one suits you best. Whether you want to stay the course with a renewal or switch, or want to take advantage of your home’s value with a refinance, I’ll make sure you get the best deal!
Ready to chat? Let’s connect and find the solution that’s right for you!