Worked Renewal Numbers and Checklists
Renew with your lender or switch? A worked comparison with every cost included
Compare a mortgage renewal offer with another lender's rate in Canada, including discharge, legal and appraisal costs, cash-back, break-even and interest over the term.
Switch lenders at renewal when the outside offer saves more in interest over the new term than it costs you to move, after your current lender has had a chance to match it. To check, compare three numbers for each offer on the same term and rate type: the interest you will pay over the term, the balance left at the end of the term, and the costs you pay to switch (discharge fee, legal or notary fees, appraisal, minus anything the new lender covers). In the worked example below, a 0.30-point rate gap on $420,000 saves about $5,900 of interest over five years, against $750 of costs.
This guide is part of the mortgage renewal checklist. Figures are illustrative.
The two offers
| Item | Current lender's renewal | Other lender |
|---|---|---|
| Term and type | 5-year fixed | 5-year fixed |
| Rate | 4.49% | 4.19% |
| Balance at maturity | $420,000 | $420,000 |
| Remaining amortization | 20 years | 20 years |
| Prepayment privileges | 20% lump sum, 20% payment increase | 15% lump sum, 15% payment increase |
| Penalty method | Greater of 3 months' interest or IRD (posted-rate method) | Greater of 3 months' interest or IRD (contract-rate method) |
| Rate hold | Not applicable | 120 days |
Make sure both offers are the same product. A five-year fixed against a three-year fixed or a variable is not a comparison.
Step 1: payment and interest over the term
Semi-annual compounding, as is usual for Canadian fixed rates:
| Renewal at 4.49% | Switch at 4.19% | |
|---|---|---|
| Monthly payment | $2,645.48 | $2,579.30 |
| Interest over 5 years | $85,737.58 | $79,850.89 |
| Balance after 5 years | $347,008.72 | $345,092.71 |
The switch lowers the payment by $66.18 a month, saves $5,886.69 of interest over the term, and leaves the balance $1,916.01 lower at the next renewal.
Step 2: the costs of switching
Typical cost items, with illustrative amounts for this example:
| Cost | Who usually pays | Amount in example |
|---|---|---|
| Discharge or administration fee from the old lender | You | $300 |
| Provincial registration fee for the discharge | Varies; sometimes included in legal fees | Included below |
| Legal or notary fees for the new registration | Often covered for a straight switch, up to a cap | $450 above the lender's cap |
| Appraisal | Often covered by the new lender | $0 |
| Title insurance | Sometimes required; often covered | $0 |
| Total you pay | $750 |
Ask the new lender in writing which costs it covers, the cap on any legal contribution, and whether it uses its own lawyer or notary. In Quebec, a switch normally needs a notary and a new deed of hypothec; see Quebec renewal differences. A collateral charge can also raise the cost; see collateral charges and switching costs.
Step 3: break-even and net saving
- Break-even: $750 / $66.18 = about 11.3 months, so the costs are recovered in the first year.
- Net interest saving over the term: $5,886.69 - $750 = $5,136.69, plus the $1,916.01 lower balance.
The renew-vs-switch calculator gives a slightly larger monthly difference (about $67.50) because it uses monthly compounding, and therefore about 12 months to break even.
Step 4: give your lender a chance to match
Send your lender the written outside offer and ask it to beat it. Suppose it comes back at 4.24%. Recompute: on these numbers, 4.24% would cost about $11 a month more than 4.19%, and over five years the difference would be roughly $1,000 of interest. With $750 of switching costs and the effort of a new application, staying at 4.24% is now close to break-even. Many people would stay. See how to negotiate your renewal offer.
Step 5: compare the features you might use
A rate gap is not the only difference. In this example:
- The current lender's penalty uses a posted-rate method, which can produce a large IRD. The new lender's contract-rate method is usually gentler. If there is any chance you will break the mortgage, this can be worth more than the rate gap. See prepayment penalties and the IRD.
- The current lender allows larger prepayments (20% against 15%). If you plan to prepay $70,000 a year, only the current lender allows it without penalty on a $420,000 balance; if you plan to prepay $20,000, both do.
- Portability and blend-and-extend rules matter if you might move.
Step 6: cash-back offers
Some lenders offer cash-back on a switch. Treat it as a reduction in costs, but read the clawback: if you break the mortgage early, you may have to repay part or all of it on top of the penalty. A cash-back mortgage at a higher rate can cost more than a no-cash-back mortgage at a lower rate. Compare the interest difference over the term with the cash amount.
Decision checklist
- Same term, rate type and amortization on both offers
- Interest over the term and balance at the end compared
- Every switching cost listed, with what the new lender covers
- Your lender given a chance to match in writing
- Penalty method, prepayment privileges and portability compared
- Funding date set for your exact maturity date
- Income documents ready for the new lender's approval
Frequently asked questions
Do I need to pass the stress test to switch?
Not for a straight switch at renewal, since OSFI's November 2024 change for uninsured mortgages, and insured switches are also exempt. You still need approval. See the stress test when switching.
Is there a penalty for switching at maturity?
No prepayment penalty applies if the new lender pays out the mortgage on the maturity date. Paying it out before maturity triggers the usual penalty.
How small a rate gap is worth switching for?
There is no rule. Work out the interest saved over the term and compare it with your actual costs. On large balances a small gap can still be worthwhile; on small balances it may not be.
Can I switch to a credit union?
Yes, if it lends in your area and approves you. Credit unions are provincially regulated and may have different qualifying rules.
Sources
- Financial Consumer Agency of Canada — switching mortgage lenders and comparing offers
- Office of the Superintendent of Financial Institutions — straight switches and the minimum qualifying rate
- Canada Mortgage and Housing Corporation — insured mortgages at renewal
