The Automatic Mortgage Renewal Trap in Canada

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Automatic Renewal: A Silent Trap That Costs Dearly

Every year, thousands of Canadian borrowers find themselves caught in an automatic mortgage renewal simply because they failed to act in time. When a mortgage term reaches maturity, the absence of a response from the borrower triggers a default renewal on terms set unilaterally by the lender. The result is almost always the same: an interest rate significantly higher than what the borrower could have obtained by negotiating or shopping the market.

Why Are Default Rates Higher?

The default rate applied during an automatic renewal is often the institution's posted rate, with no discount whatsoever. Posted rates at major Canadian banks are systematically higher than negotiated rates, serving primarily as a reference point for calculating prepayment penalties. In practice, no well-informed borrower should pay the posted rate. The gap between the posted rate and the best negotiable rate commonly ranges between 0.50% and 1.50%, depending on the loan type and market conditions.

How Does Automatic Renewal Happen?

The renewal notice is sent: The lender sends a renewal notice between 120 and 21 days before the term maturity date. This notice contains a rate and terms offer for the new term.
The borrower does not respond or delays the decision: Due to lack of time, unfamiliarity, or procrastination, the borrower does not sign the renewal form and does not contact another lender.
The maturity date arrives without action: The term expires and, without instructions from the borrower, the lender applies the default renewal conditions outlined in the original mortgage contract.
The automatic renewal takes effect: The mortgage is renewed at a posted or default rate, often for a one-year term or a term similar to the previous one, with no negotiation. Payments are adjusted accordingly.

How to Avoid the Automatic Renewal Trap

Mark your term maturity date in your calendar and set a reminder 120 days before that date.
Consult an AMF-certified mortgage broker at least 90 to 120 days before maturity. The broker will shop the market free of charge on your behalf.
Never sign your lender's renewal offer without obtaining at least two or three competing quotes from other institutions.
Even if you decide to stay with your current lender, use competing offers as negotiating leverage to secure a better rate.
Always actively respond to the renewal notice, even if it is to decline the initial offer and request additional time to shop.

What to Do If Automatic Renewal Has Already Occurred

If your mortgage has already been automatically renewed, do not panic. Contact an AMF-certified mortgage broker immediately. In many cases, it is still possible to renegotiate with your current lender or transfer your mortgage to another lender. If the automatic renewal was into an open or short-term product, the transfer penalty will be minimal. Even if a 5-year closed term was applied, the three-month interest penalty (for variable rate) or IRD (for fixed rate) could be less than the savings achievable by obtaining the best market rate. Every day counts, as the longer you wait, the more interest you pay at the default rate.

Frequently Asked Questions

What is automatic mortgage renewal?

Automatic renewal occurs when your mortgage term reaches maturity and you have not signed a new agreement with your lender or transferred your loan. The lender then automatically renews your mortgage, typically for a similar term, but at a posted or default rate that is often much higher than the rate you could have negotiated.

What is the typical gap between the default rate and the negotiated rate?

The gap varies by lender and market conditions, but typically ranges between 0.50% and 1.50%. On a $300,000 mortgage balance over a 5-year term, a 1% gap represents approximately $15,000 in additional interest. This is a considerable cost that can be avoided through simple negotiation.

How far in advance must the lender notify me about renewal?

In Canada, federally regulated lenders are required to send a renewal notice at least 21 days before term maturity. Many send the notice 120 to 90 days in advance. However, it may be advisable to not wait for this notice to start shopping. Ideally, contact a mortgage broker 120 days before maturity.

Can I reverse an automatic renewal after it has taken effect?

Yes, in most cases. If your mortgage was automatically renewed into an open or short-term product, you can generally transfer to another lender without significant penalty. Some lenders also allow renegotiation of terms in the weeks following automatic renewal. Act quickly and consult a mortgage broker.

How can I avoid the automatic renewal trap?

Mark your term maturity date in your calendar with a reminder 120 days before. Consult an AMF-certified mortgage broker to compare market offers. Never sign your lender's renewal offer without obtaining at least two or three competing quotes. Actively respond to the renewal notice, even if it is to decline the initial offer.

Do all banks proceed with automatic renewal?

The vast majority of Canadian lenders, including the Big Six banks, proceed with automatic renewal if the borrower does not respond before maturity. The exact default renewal conditions (term, rate) vary by lender and are described in the original mortgage contract.