Should You Sign Your Bank's Renewal Letter? (Almost Never)

Every year, hundreds of thousands of Canadian homeowners get a renewal letter from their bank. It's usually a single page. It has your name, your remaining balance, a new rate, and a signature line. The letter implies that this is your renewal - sign here and you're set for another five years.

Here is what nobody at the bank will tell you: that letter is the bank's opening offer. It is almost never the best rate they would actually give you, and it is almost never as good as what another lender would offer. Signing it costs the average Canadian household between $5,000 and $25,000 over the term, depending on the size of the mortgage.

Why the letter rate is high on purpose

Banks know two things about renewal customers. First, most of them don't shop. Roughly 60-70% of homeowners renew with the same lender without negotiating. Second, the cost of switching feels intimidating - new application, new appraisal, new lawyer, new everything. So banks price the renewal offer high, knowing that inertia will do most of the work.

If you do nothing, you pay the high rate. If you call and complain, you usually get a small discount. If you walk in with a competing offer from another lender or a broker, you usually get a much bigger discount or you switch.

The math on a $500,000 mortgage with a 0.40% rate gap is roughly $11,000 in extra interest over a 5-year term. That is the cost of signing the letter without checking.

The actual renewal process when you do it right

When your maturity date is roughly 4-5 months out, that is the moment to start shopping. Not 4 weeks before. Not after the letter arrives. Four to five months. Here is why.

• You have time to compare offers from multiple lenders without feeling rushed
• You can lock a rate hold with a new lender for up to 120 days before your renewal
• If rates drop in that window, your hold lets you re-quote at the lower rate
• You can negotiate with your current lender from a position of leverage
• You have time to handle the paperwork without missing your maturity date

I usually start the conversation 90-120 days out. The first call is short - we look at your current rate, your current balance, your remaining amortization, and what's available right now. If switching makes sense, I lay out the math and the timing. If it doesn't, I tell you to sign whatever you've been offered. About one in five of my renewal clients ends up staying put because their existing lender already had them at a strong rate.

When switching is worth the friction

Switching to a new lender involves: a new application, an income re-check, an appraisal in some cases, and a lawyer or title insurance company to handle the discharge. Most lenders cover those costs through a switch program if your file is clean. So in practice, you usually pay nothing out of pocket.

The break-even point is surprisingly small. If a competing lender offers you a rate that is 0.20% lower than your bank's renewal offer on a $400,000 mortgage, that is roughly $4,000 in interest savings over a 5-year term. Worth the paperwork.

If the gap is 0.40% or more, it is almost always worth switching. That is the default assumption I work from.

What about your existing lender's "best" offer?

This is the trick most people miss. The renewal letter is not the bank's best offer. It is their first offer. Their best offer is reserved for customers who push back - and the easiest way to push back is to bring them a competing quote.

I have had clients call their bank with a quote from another lender and get the bank to match it on the spot. Banks would rather discount your rate than lose your mortgage. So even if you decide to stay, getting a competing quote first costs you nothing and almost always saves you money.

What if you have a collateral mortgage?

This is the one wrinkle that can change the math. If your existing mortgage is registered as a collateral charge - common at TD, Scotia, and some other banks - the discharge and re-registration can cost a few hundred dollars more than a standard switch. It's still usually worth doing if the rate gap is meaningful, but it's worth knowing about up front.

I'll tell you whether you have a collateral mortgage in the first 5 minutes of a call. We just need to look at your registration documents.

Don't trust the "automatic renewal"

Some lenders will quietly renew you into a 6-month convertible or a similar holding product if you don't sign the letter by your maturity date. That product is almost always at a much higher rate than anything you would shop for. If you ignore your renewal letter without doing anything else, you can end up worse off than if you had just signed it.

The right move is: do not sign, but do not ignore either. Start the shopping conversation 4-5 months out, decide what to do with informed numbers in front of you, and then act before maturity.

Bottom line

The renewal letter is the bank's opening bid. Treat it that way. Get a second opinion. Compare three things: rate, prepayment terms, and portability. You will almost always find better, and even when you don't, you'll renew with the confidence of knowing you actually checked.

If your renewal is in the next 6 months, book a 20-minute call. We will tell you exactly what the gap is between your offer and the market, and what's worth doing about it. No commitment, no charge.

For more on the cost of switching mid-term, listen to the Mortgage Secrets episode "Understanding Mortgage Penalties" on Spotify.