Renew or Refinance? What Canadian Homeowners Aged 55+ Need to Know

For many Canadians aged 55 and older, approaching the end of a mortgage term brings an important financial decision: Should you renew your mortgage as-is or explore refinancing for more flexibility? With interest rates on the rise and home equity growing, choosing the right option can help you maintain financial security in retirement.

Mortgage Renewal – A Simple Option

If your mortgage term is ending, renewing means agreeing to a new term (usually 1 to 5 years) with your existing lender. The balance and amortization period stay the same, but your interest rate and monthly payment may change based on current rates.

Example:
A homeowner who borrowed $400,000 in 2020 at 1.70% interest would have a remaining balance of about $332,939.71 after five years. At renewal, they would need to negotiate a new interest rate, likely higher than their original rate.

Pros of Renewing:
✔ Quick and easy process with no extra paperwork
✔ No additional debt added
✔ Possible rate negotiation with your lender

Cons of Renewing:
✖ Could lead to “payment shock” if rates have increased
✖ No ability to access home equity for other financial needs

Mortgage Refinancing – A Flexible Alternative

Refinancing allows homeowners to restructure their mortgage. This can mean:

• Extending the amortization to reduce monthly payments

• Accessing home equity for financial needs

• Consolidating higher-interest debt into a lower-rate mortgage

Example:
If a homeowner’s property has increased in value, refinancing could provide access to built-up equity. This extra cash could be used for renovations, medical expenses, investments, or supplementing retirement income.

Pros of Refinancing:
✔ Helps manage higher mortgage payments by extending amortization
✔ Allows homeowners to access tax-free cash from home equity
✔ Provides financial flexibility without selling the home

Cons of Refinancing:
✖ May include prepayment penalties if done before term-end
✖ Extending amortization increases total interest paid over time

How Interest Rates Impact Your Decision

Homeowners who locked in a 1.70% fixed rate five years ago may now face renewal rates of 4.50% or higher. That can cause a sharp increase in monthly payments, creating financial strain—especially for retirees on a fixed income.

One way to manage this increase is by refinancing with a longer amortization to reduce monthly payments. Here’s a comparison:

Rates are for illustrative purposes only. Rates subject to change without notice. OAC, E&O.

By refinancing, homeowners can lower their monthly payments, making it easier to manage expenses in retirement.

Could a Reverse Mortgage Be a Better Option?

For homeowners 55 and older, a Reverse Mortgage offers another way to access home equity without increasing monthly debt payments. Unlike traditional refinancing, a Reverse Mortgage:
✔ Provides tax-free cash without requiring monthly mortgage payments
✔ Allows homeowners to stay in their home while using their equity
✔ Can be used for any purpose, including covering living expenses, medical costs, or helping family members

If maintaining cash flow is a priority, Rewind Mortgage can help determine whether a Reverse Mortgage is the right alternative to refinancing.

Key Terms Explained

Amortization Period

The total time it takes to pay off a mortgage. Extending this period lowers monthly payments but increases long-term interest costs.

Home Equity

The portion of a home that is owned outright, calculated as:

Home Value – Mortgage Balance = Equity

With a traditional mortgage, you can refinance up to 80% of the home’s value, as long as you qualify based on your income and existing debts. With a Reverse Mortgage, qualification is less about income and more about age, the location of the home, and having at least 50% equity or more. You can then pull out tax-free cash with no required payments through a Reverse Mortgage. Don’t forget that your home continues to appreciate over time.

Payment Shock

A sudden increase in mortgage payments due to higher interest rates at renewal. Retirees on a fixed income can reduce this risk by refinancing or considering a Reverse Mortgage.

What’s the Best Option for You?

Every homeowner’s financial situation is different. If you’re facing mortgage renewal and are unsure whether to renew, refinance, or explore a Reverse Mortgage, Rewind Mortgage can help.

We specialize in helping Canadians 55+ navigate their mortgage options with clarity and confidence. Contact us today to explore the best strategy for your financial future.

📞 Call Rewind Mortgage at 289-312-6333
📧 Email Peter Fabry at info@rewindmortgage.ca