When you have a mortgage in Canada, there are two key lengths of time you need to remember. The first is your amortization period, which is the length of time it takes for you to pay off your loan in full. The second is the length of time you must continue making payments on your mortgage after it has been fully paid off (your term).

In Canada, amortizations for first-time homebuyers usually fall between 20 and 30 years.

To keep track of how long you’ll need to pay off your mortgage, you’ll need to consider two different periods: the amortization period and the term. The amortization period refers to the length of time it will take you to pay off your mortgage if you make only the required monthly payments. A typical amortization period is 25 years. Your term is shorter than the amortization period and represents the length of time your current mortgage rate is locked in with your current lender. 

For example, a common term is a 5-year fixed, which means you will pay a fixed mortgage interest rate for five years. It’s common for Canadians to have several terms over the entire amortization period of their mortgage.

You have a few options at the end of your mortgage term. You can renew with your current lender, shop around and switch to a new lender, or pay off your mortgage entirely.

Few Canadians have the ability to pay off their mortgage in one lump sum payment, but it does happen. One way is by receiving a cash windfall such as an inheritance or lottery winnings. So is paying off your mortgage at renewal the right choice for you?

What is a mortgage renewal?

When your mortgage term is ending and you want to continue making payments on that property, it’s called a mortgage renewal. Usually about 21 days before your current mortgage term expires, you’ll receive a renewal letter from your lender outlining the new mortgage term. If you are happy with the terms outlined in the letter, you just accept them and your mortgage renews for another period.

But if you renew your mortgage term before 21 days before the expiry of your current term, you can save on refinancing costs and fees. Most lenders in Canada allow you to renew your mortgage between 120 and 180 days before your current term expires.

What are the pre-payment penalties?

If you’re considering paying off your mortgage and breaking your term at the time of your mortgage’s renewal, be aware that you may face a fee known as a pre-payment penalty. A pre-payment penalty is a charge that you’ll pay to break your mortgage term and pay off your mortgage, or when refinancing your mortgage.

If you pay off your mortgage before the end of the term, you will incur a penalty. Most penalties are calculated as a percentage of the remaining balance due on the mortgage, so if you’re close to the end of your term and want to avoid paying a high penalty, it’s best to do some math ahead of time.

If you aren’t ready to pay the penalty for not having a mortgage, now might not be the best time to get rid of your monthly mortgage payments.

Switching mortgage lenders

If you don’t want to stay with your current lender, you can refinance your mortgage with another provider. When you refinance your mortgage, you are essentially getting a new mortgage from a new lender and using that money to pay off your old loan with your old lender.

Refinancing can help you save money on your monthly mortgage payments and allows you to apply for a larger mortgage, as long as you have enough equity in your home. The extra money from the larger mortgage would be advanced to you as cash, which you can spend on home improvements, post-secondary education, debt consolidation and more.

The downside of refinancing is that you’ll be dealing with a new mortgage provider, and you’ll have to go through the application process again. You’ll also pay extra fees which include:

• Setup fees with the new lender

• Fees to discharge your old mortgage and register your new mortgage

• Transfer fees from your current lender

• Appraisal fees to confirm the value of your property

• Administration fees/charges

• ANy Ppre-payment penalties

Some lenders will cover certain costs to refinance.

WHat happens when you pay off your mortgage in Canada?

If you’ve calculated your pre-payment penalty, and you have the cash to pay off your mortgage, that’s great news! Paying off your home loan is a big milestone.

Once you’ve made a lump-sum payment to your lender, it will be necessary for you to go through the process of discharging your mortgage. This process usually requires the help of a real estate lawyer. Your lawyer will provide confirmation from your lender that you have paid off your mortgage. 

Your lawyer will then submit this confirmation to your local land registry office so that they may update your property’s title and remove your lender’s interest in your property from the title. Once this has been done, your mortgage is officially discharged, and you are mortgage-free!

The wrap up!

It’s possible to pay off your mortgage at renewal, but it may not be the best use of your lump sum of cash. Today’s low-interest-rate environment means that your lump sum could be put to better use if you invest it in the stock market or use it to pay off high-interest debt.

However, if you’re dreaming of the day when you no longer have to make mortgage payments, paying off your mortgage at renewal is possible and can be a smart investment. 

How can Ahmad, mortgage specialist at AskAhmad.ca and the Total Mortgage Source 360 Team help you?

Ahmad and his team are industry experts on mortgages. They offer excellent customer service and pride themselves on their ability to help you find the right mortgage product for your needs.

We can offer you some of the most competitive interest rates and mortgage products available because we have access to Canada’s leading lenders, including banks, mortgage firms, trust companies and private lenders. 

Want to learn more about how Ahmad can help you secure your mortgage? Reach out today to get the conversation started!  Ready to apply for your FREE mortgage pre-approval?  Click HERE 

Total Mortgage Source 360  FSRA#12151 – Each office is independently owned and operated 

Ahmad El-Farram, Mortgage Agent #M21005249

The Mortgage Centre at Total Mortgage Source 360 

License #12151

www.AskAhmad.ca

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M: 647.992.4411

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