- Renewal keeps your balance and your remaining amortization — only the rate changes, so the payment is simply re-solved.
- A shorter remaining amortization means a rate rise hits the payment harder, because there are fewer years to spread it across.
- You can move lenders at renewal without a prepayment charge, which is what makes the rate genuinely negotiable at this moment and not at others.
- A lump-sum prepayment made at renewal lowers the payment for the whole next term, and renewal is usually the moment a contract allows one.
How a mortgage renewal works
A Canadian mortgage has two clocks. The amortization is how long it takes to pay the loan down to zero — 25 or 30 years, typically. The term is how long your rate and conditions are contracted for, and it is much shorter, usually five years. When the term ends, the loan does not: you renew it at whatever rate is available then, for whatever amortization is left.
That is what makes renewal different from refinancing. Refinancing resets the amortization clock; renewal does not. Your balance and your remaining years carry straight over, so the payment is simply re-solved for those years at the new rate. Nothing else about the loan moves.
Which means the whole outcome turns on one number. If rates have risen since you last signed, the payment rises with them and there is no term left to spread the increase over — a twenty-year remaining amortization has to absorb it in twenty years, not twenty-five.
The math
The new payment is the standard level-payment formula applied to your current balance over your remaining amortization at the renewal rate: P = L · r · (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1). The payment you make today is an input rather than derived from your old rate, because it is the number on your statement and the change against it is the question being asked.
The term figures come from running the new schedule forward by the length of the term. The balance at the end is computed in closed form from the amortization schedule; principal paid over the term is the opening balance minus that; and interest over the term is the total paid minus the principal. Those three always reconcile, by construction.
The rate ladder is centred on the rate you enter and steps half a point in each direction. It is not a set of market rates and makes no claim about what any lender is offering — it exists so you can price the negotiation, since renewal is the one moment in a mortgage’s life when the rate is genuinely open.
Worked example
A $380,000 balance with 20 years of amortization left, currently paid at $2,100 a month, renewing at 5.5% on a five-year term: the payment becomes $2,614. That is $514 more a month, or $6,168 a year, with no change at all to the loan other than the rate.
Over the five-year term that payment sends $96,753 to interest and $60,085 to principal, leaving $319,915 owing at the next renewal with 15 years of amortization still to run. Now the negotiation: at 4.5% the payment is $2,404 and at 6.5% it is $2,833 — a spread of $429 a month, or roughly $25,700 over the term. That is what one point is worth on this balance, and it is the reason a renewal offer is a starting position rather than a conclusion.
Key terms
- Term
- How long your rate and conditions are contracted for — commonly five years in Canada. When it ends you renew; the loan itself continues.
- Amortization
- How long the loan takes to reach zero at the current payment. It keeps counting down across renewals and is never reset by one.
- Renewal statement
- The offer a lender sends before your term ends. It is a starting position: switching lenders at renewal carries no prepayment charge.
- Payment shock
- The jump in payment when a term signed at a low rate renews at a higher one. Its size depends on the rate gap and on how little amortization is left.