Refinance vs renewal: Understanding the difference

Mortgage refinance vs renewal: What’s the difference? While both services are designed to help home owners make the most of their mortgage and property, they are quite different. Refinances and renewals will appear at different points throughout your homeownership experience, and they each have their own sets of benefits and limitations. Here’s what you should know about these two paths, including when to act on each one, and which one may be best for you!

Mortgage refinance

A mortgage refinance is a common service that many home owners will go through at some point. This is the process of reviewing and re-adjusting the terms of your mortgage to better suit your needs. It more or less means creating a new mortgage product to take over the mortgage terms you currently have. 

Your mortgage needs may change over time, and the product you secured five years ago might not fit you any longer. A refinance allows you to alter the terms of your mortgage in a way that better matches your current situation. Home owners never have to refinance their mortgage, so they will need to trigger the start of this process (after speaking with a mortgage broker!). This is unlike a mortgage renewal, which we will discuss in more detail later. 

Of course, people may choose to refinance for a variety of reasons, but the goal of any refinance is to improve your mortgage terms. It is therefore important to ensure that any changes you make to your product are worth it in the long run.

When to consider refinancing

So, what are some examples of a good reason to consider a mortgage refinance? There are many explanations for a person’s decision to refinance. However, here are a few of the most common:

• Accessing home equity to take on renovations or pay off debts.
• Shortening your amortization period to pay off your mortgage faster.
• Securing a better interest rate.
• Switching between a variable-rate and fixed-rate product.

As you can see, the motivation behind refinancing is for financial security and freedom. This may take the form of paying off your mortgage quicker, lowering your monthly payments, or accessing extra cash flow. The main thing to consider is whether or not the benefits of a refinance will outweigh the costs. Breaking your mortgage term will result in penalties, and you will want to ensure you are saving more than you will owe in short-term fees. 

Mortgage renewal

Unlike a refinance, a mortgage renewal is a process every home owner will go through at some point. Every mortgage has a term length associated with it. For example, a common mortgage term is five years. At the end of this period, you will decide whether to renew with your current lender and product, or make a switch. This gives you a chance to make any necessary changes at an optimal point in your homeownership journey. While a refinance allows you to make adjustments during your term, a renewal lets you do so at the natural end of your term. 

Similar to a refinance, people may renew with a new lender or product for many different reasons. Often, they are motivated by the same factors as those who refinance. However, these home owners wait until they reach their renewal before making any changes, to avoid the fees associated with breaking their current term. If your needs are not urgent and can wait until your renewal, this is often a good strategy.

Reminders for your renewal period

Near the end of your mortgage term, your lender will likely reach out to you with an offer to renew your mortgage early. This may be tempting, as it will allow you to get the process out of the way quickly. However, don’t feel like you need to sign on for another term without exploring your options! Mortgages have renewal periods so home owners can reevaluate their needs and determine if they need to make any changes. Even if you are confident you will end up working with the same lender and product again, it doesn’t hurt to shop around first. This will give you peace of mind knowing you did your research and can commit to a new term with the confidence that it is the best fit for you.

Reach out to a broker!

So, where does a mortgage broker fit into these processes? Our work starts right at the beginning! If you feel like your mortgage no longer meets your needs, we can help you evaluate your situation. We can guide you through your options for refinancing, the cost of doing so, and whether it would be worth it for you. Alternatively, we can help you shop around for potential new products at your renewal time to see if there is a better option out there. Since brokers have access to products that the general public may not, this is a great way to ensure you are finding the best possible choices. 

As brokers, we understand the importance of securing a mortgage that fits your needs. The differences between a mortgage refinance vs renewal are easy enough to understand, but you still need professional guidance to find the right match for you! We can work with you to ensure you are choosing the path that allows you to meet your goals without sacrificing your finances.

If you have any questions about your mortgage, give us a call at Centum Home Lenders! You can reach us at 506-854-6847, or get in touch with us here.