Renewal vs. Refinance in Alberta — Which Do I Need?
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·Reviewed by a mortgage professional
Short answer
Renewal happens at the end of your term when you sign a new rate and term on your existing mortgage — usually with no penalty. Refinance replaces your mortgage mid-term, often to access equity, consolidate debt, or get a lower rate — but typically triggers a prepayment penalty.
The plain-English version
At renewal, your term ends but your mortgage continues. You choose a new rate and term with your current lender or switch to a new one — without breaking the contract early.
Refinancing means replacing the mortgage before maturity. You may get a better rate or access equity, but you pay penalties and closing costs to break the current term.
Alberta-specific considerations
- Alberta property values affect how much equity you can access if you refinance (typically up to 80% LTV).
- Consolidating debt at renewal vs. refinance depends on whether you need to increase your balance before maturity.
- Switching lenders at renewal is common and usually penalty-free; mid-term switches are refinance transactions.
Example scenario
A homeowner whose five-year term ends in October can shop renewal rates in July and sign with any lender — no penalty. If they want to pull $40,000 of equity out in March, that is a refinance with a penalty and new legal work.
Common mistakes to avoid
- Auto-signing a renewal letter when you actually need to access equity (refinance).
- Refinancing mid-term for a tiny rate drop without calculating break-even on the penalty.
- Waiting until the last week of your term to shop renewal alternatives.