When your mortgage term ends, you have a choice: renew or refinance. Many homeowners don't realize these are different options with different implications—understanding the distinction can save you thousands and help you achieve your financial goals.
What Is a Mortgage Renewal?
A renewal is a simple continuation of your mortgage at the end of your term.
What stays the same:
- Mortgage amount (minus principal paid)
- Amortization continues as scheduled
- No new qualification required (if staying with current lender)
What changes:
- Interest rate (new rate for next term)
- Term length (you choose new term)
- Can switch lenders (with new qualification)
What Is a Mortgage Refinance?
A refinance is a new mortgage that replaces your existing one, with different terms.
What can change:
- Mortgage amount (access equity or pay down)
- Amortization (restart or adjust)
- Lender (switch if desired)
- Rate and term (new terms)
Requires:
- New qualification (income, credit check)
- Potentially new appraisal
- Legal fees
- May trigger penalty if mid-term
Key Differences Summary
| Feature | Renewal | Refinance |
|---|---|---|
| Mortgage amount | Unchanged | Can increase or decrease |
| Qualification | Not always required | Always required |
| Access equity | No | Yes |
| Legal fees | Minimal | Yes ($800-1,500+) |
| Timing | At term maturity | Anytime |
| Penalty | None (at maturity) | Yes (if mid-term) |
When to Simply Renew
Renewal makes sense if:
- You're happy with your current mortgage amount
- You don't need to access equity
- Your situation hasn't changed significantly
- You just want a new rate for the next term
Even at renewal, you should still:
- Shop around for best rates
- Compare lender offers
- Consider switching if another lender is significantly better
Don't just sign the renewal letter—see our guide on renewal mistakes to avoid.
When to Refinance
Refinance makes sense if:
- You want to access home equity (for renovations, investments, etc.)
- You want to consolidate high-interest debts
- You want to change your amortization
- You want features your current mortgage doesn't offer
Accessing Equity: Refinance Required
To take equity out of your home, you must refinance:
Maximum: 80% of home value
Example:
- Home value: $700,000
- Current mortgage: $400,000
- Maximum refinance: $560,000 (80%)
- Accessible equity: $160,000
This is different from a HELOC—see our HELOC vs refinance comparison.
Refinancing Costs
Refinancing isn't free:
Legal fees: $1,000-2,000
Appraisal: $300-500 (sometimes covered by lender)
Discharge fee: $200-350
Potential penalty: Varies (if mid-term)
Calculate whether benefits exceed costs before proceeding.
The Switch-at-Renewal Option
A middle ground exists:
Switching lenders at renewal:
- No penalty (at maturity)
- May require new qualification
- Minimal or no legal fees (some lenders cover)
- Get better rate or terms
This gives you some benefits of refinancing (new lender, potentially better terms) without the full cost.
Can You Extend Amortization at Renewal?
With current lender (renewal):
Usually no—amortization continues on schedule.
With new lender (switch or refinance):
May be possible, depending on qualification.
Full refinance:
Can restart amortization (up to 25 or 30 years depending on lender).
Case Study: Renewal vs Refinance Decision
Situation: $50,000 in credit card debt at 19.99%
Option 1: Renew as-is
- Keep paying high-interest debt separately
- Total cost over 5 years: Very high
Option 2: Refinance to consolidate
- Roll $50,000 into mortgage at 5%
- Costs: ~$2,000 in fees
- 5-year interest savings: $40,000+
- Net benefit: Significant
In this case, refinancing to consolidate debt makes clear sense.
FAQ
Q: Can I refinance at renewal time?
A: Yes. Renewal time is actually the perfect time to refinance because there's no penalty.
Q: Is there a penalty to switch lenders at renewal?
A: No, as long as you're switching at your maturity date, not early.
Q: Can I renew for a different term length?
A: Yes. At renewal, you can choose a new term (1-year, 3-year, 5-year, etc.).
Q: Do I have to requalify to renew with my current lender?
A: Usually not, unless you want to make changes like increasing the mortgage.
Q: Can I do a refinance if I'm underwater (owe more than home is worth)?
A: Very difficult. You'd need to bring money to the table to reduce the balance below 80% LTV.
What's Next
Understanding your options at mortgage maturity is essential. Whether you're leaning toward renewal or refinance, start exploring rates early and learn about early renewal timing to maximize your options.
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