What Happens If I Don’t Renew My Mortgage? – Consequences Explained
Mortgage renewal might sound like just another routine financial task, especially after five years of regular payments. But for many Canadians, the decision to renew—or not—can have serious financial consequences. Whether you’re planning to sell, refinance, or simply unsure about your next move, failing to renew your mortgage properly can put you at risk of higher rates, unexpected penalties, and even legal trouble.
In this guide, we’ll break down what happens when you don’t renew your mortgage, the variety of reasons people consider delaying or skipping renewal, and what you can expect if you let your term expire without taking action.
The Mortgage Renewal Process in Canada
In Canada, most mortgages are amortized over 25 or 30 years but broken into shorter terms—commonly 1, 3, or 5 years. At the end of each term, your contract expires, and you must either:
Renew with your current lender,
Switch to a new lender,
Refinance your mortgage,
Or pay off the balance in full.
Most lenders will send you a renewal offer about 30 days before the term ends. However, it’s critical to know: you’re under no obligation to accept that offer, and this moment is your chance to negotiate better rates or terms. But what if you don’t respond at all?
What Happens If You Ignore Your Renewal?
If you don’t actively renew or refinance your mortgage, your lender will not simply walk away from the debt. Here’s what could happen:
1. Automatic Renewal into a Closed Short-Term Term (at a High Rate)
Some lenders will automatically roll your mortgage into a 6-month closed term at a significantly higher interest rate. This new term might not allow early repayment without a penalty, which can be a major issue if you plan to sell or refinance soon.
Real-world example:
Natalie in Toronto was planning to sell her condo in June, with her mortgage term expiring in April. She didn’t act in time, and her bank automatically renewed her mortgage into a 6-month closed term at a 7.49% interest rate—much higher than the 5-year fixed rate of 4.89% she could have negotiated. When she sold in June, she had to pay over $4,000 in penalties to break the new term early.
2. Renewal into an Open Mortgage (Rare and Expensive)
Some lenders may place your mortgage into an open term, which allows you to pay off the balance at any time without penalties. But here’s the catch—open mortgages come with extremely high interest rates, often 1–2% higher than closed terms.
Example:
Kevin in Calgary told his lender he was selling his home shortly after maturity. They offered him an open mortgage at 8.25%, which gave him flexibility but ended up costing him hundreds more per month while he waited for the sale to close.
3. Forced Repayment – Pay the Balance or Default
If your lender does not offer an open or short-term renewal option, and you don’t renew, refinance, or pay off the loan, they may consider you in default. In this case, the lender can initiate legal action or power of sale proceedings to recover their money.
Example:
Sam and Priya in Vancouver inherited a rental property with a mortgage term ending soon. They were unsure whether to sell or keep it, so they ignored the lender’s renewal notices. Their lender didn’t offer auto-renewal and issued a demand for full repayment. Caught off guard, they were forced to list the property under pressure and accept a lower price to avoid legal proceedings.
Reasons Why People Might Not Renew Their Mortgage
Let’s explore some common scenarios where homeowners might delay or avoid renewing, and what to consider in each case:
1. You Plan to Sell Shortly After Maturity
This is probably the most common reason people hesitate to renew. If you're selling within a few months, locking into a 5-year term can trigger prepayment penalties. An open mortgage might be a better fit—but only if you plan to sell very soon and can stomach the higher interest rate in the short term.
2. You're Hoping for Better Rates or Want Time to Shop Around
Maybe rates are dropping and you’re trying to time the market. Waiting can sometimes pay off, but it’s risky. Once your mortgage hits maturity, your lender isn’t obligated to offer you the same terms or give you a grace period.
Tip: Start shopping around at least 120 days before maturity. Many lenders allow early renewals within this window without penalty.
3. You're Trying to Refinance but Haven't Finalized Plans
Refinancing for renovations, debt consolidation, or investment purposes is common. But if your plan isn't ready before maturity, your lender may not offer the flexibility you need. That’s when being proactive is essential—some lenders allow short bridge options, but only if you ask in advance.
Penalties for Not Acting
Failing to renew your mortgage proactively can cost you in a few different ways:
Higher interest costs: You may be rolled into a rate 1–2% higher than what you could’ve negotiated.
Prepayment penalties: If you're forced to break an auto-renewed term, you’ll pay fees—often calculated as 3 months’ interest or an Interest Rate Differential (IRD), whichever is higher.
Administrative fees or legal action: Ignoring the lender entirely may trigger legal action, forcing a power of sale.
Credit score damage: In cases of default or forced legal action, your credit score can be significantly impacted.
How to Avoid These Pitfalls
Set calendar reminders: Know when your mortgage is up for renewal and plan at least 3–4 months in advance.
Communicate with your lender: Even if you’re unsure what you want to do, let your lender know and explore your options.
Speak to a mortgage broker: A licensed broker can help you compare renewal offers, negotiate better terms, or explore short-term/open options.
Get it in writing: Always get confirmation of your new terms in writing. Don't assume the lender will do what's best for you by default.
Conclusion: Be Proactive—Don’t Let Renewal Catch You Off Guard
Letting your mortgage renewal pass without action can have serious financial consequences. From being rolled into a high-interest open or closed term to facing legal pressure to repay the loan in full, the risks of inaction are very real.
Even if you’re planning to sell soon or are uncertain about your next move, taking a proactive approach—communicating with your lender, negotiating new terms, or working with a mortgage professional—can help you avoid unnecessary costs and stress.
In short: don’t ignore your mortgage renewal. It’s not just paperwork—it’s an opportunity to take control of your financial future.
