Your mortgage renewal is the one moment you can usually restructure without a prepayment penalty. That makes it an ideal time to consolidate debt.

Why renewal is the best time

  • No prepayment penalty at the end of your term
  • You can switch lenders to get the best rate on the larger amount
  • Legal work happens anyway if you switch

See the costs of consolidating.

Plan four to six months ahead

  1. List your debts and decide which to include. See which debts.
  2. Estimate your equity. See equity needed.
  3. Clean up your credit: pay everything on time in the months before.
  4. Compare offers before signing your lender’s renewal letter.

What changes when you add debt at renewal

Adding debt turns the renewal into a refinance. That means:

  • A full application, with income documents and a credit check
  • An appraisal to confirm the home’s value
  • The stress test at federally regulated lenders
  • A lending limit, generally 80% of the home’s value at banks

Start early, because a refinance takes longer than a simple renewal or switch.

A simple illustration

Round numbers, for illustration only: your $260,000 mortgage renews on a $450,000 home. At 80%, the maximum is $360,000, leaving about $100,000 of room. Consolidating $35,000 of debts and about $1,500 of costs brings the new mortgage to around $296,500, well within the limit, and without a penalty.

If renewal is far away

A second mortgage now, then folding it into your first mortgage at renewal, can bridge the gap without breaking your current term. See which way to consolidate.

Don’t sign automatically

Renewal letters often come with less competitive rates, and signing your current lender’s renewal can lock you in for another term with no room to consolidate. Some lenders send renewal paperwork weeks before maturity. Compare first, then decide.

What to do in the months before

  • Avoid new debt. New balances raise your ratios and the amount you need to borrow.
  • Pay every bill on time, especially in the last few months.
  • Gather documents early: pay stubs, employment letter, notices of assessment, debt statements and your property tax notice.
  • Get payout statements for each debt close to the closing date.

After renewal

Once the debts are rolled in, keep paying what you paid before toward the mortgage. See paying it off faster.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.