Often, the terms “mortgage refinancing” and “mortgage renewal” are used interchangeably. But really, there is only one similarity between the two. That’s the fact that they both deal with your mortgage.
Mortgage renewals typically only renew your mortgage. This is especially important with Ottawa mortgages because Canadian mortgages work on terms and amortization rates. When you are initially approved for your mortgage, the contract will outline an amortization period; this will account for the total life of the loan. That amortization period will be broken down into terms, with each term being for a certain period of time, typically 5 to 7 years.
Renewing your mortgage is a requirement, unless you want to repay the entire balance of the loan; and most lenders contact their clients three to six months before renewal is due to remind them that the time is coming up. Even though many people know that this is what renewal is, they still think that the outlined contract will be the same from next to next. But this doesn’t have to be true. Upon renewal homeowners are free to look around at different lenders, check out different rates, and find new mortgage terms that they are more comfortable with.
Home refinancing on the other hand, is quite different. Although you can still change the terms of your mortgage, and even use a different lender, home refinancing is never a requirement; and it could even be harder to get approved for this than mortgage renewal. With home refinancing, all or most of the terms are usually changed and the old loan is replaced by an entirely new loan. A cash-out refinancing is one type of refinancing that is completely different than a mortgage renewal. With this type of refinance, the homeowner applies for more money than what’s needed to cover the mortgage so they can receive a certain amount of money along with the new mortgage.
Home renewal and home refinancing might sound very similar, and the fact that one mortgage either is, or can be, replaced with a new mortgage only makes it that much more confusing. This is the reason why so many use the two terms interchangeably. However the two really are quite different and knowing what you need and when you need it is the first step in understanding your new (or sort of new) mortgage.