Mortgage Strategy: Is Repeatedly Re-amortizing Your Home Loan a Smart Move or Costly Habit?
Every time you renew a mortgage, you're exposed to prevailing market interest rates. If rates have risen, even resetting the amortization back to 30 years may not reduce payments to your expected level, potentially causing immediate budget strain. This financial maneuver has become a topic of increasing discussion among Canadian homeowners, particularly those approaching retirement.
A Family Conversation Reveals Diverging Approaches
In a revealing family discussion about housing, a young couple explained their strategy of saving for a larger down payment while renting affordably, with the goal of being mortgage-free by retirement. Their aunt and uncle, however, presented a contrasting approach: they plan to keep renewing their mortgage every three to five years and resetting the amortization back up to 30 years to maintain manageable payments.
"They know this means paying much more interest but view it as a practical alternative to renting," explained Selina, who sought professional advice about this strategy. "I'll admit I'd never heard of this approach before and wasn't sure how to respond."
The Mechanics of Repeated Amortization Extensions
Many homeowners choose to extend their mortgage amortization back to the originally approved number of years, either at renewal or mid-term, because doing so can lower monthly payments. What's less common is repeating that extension at every renewal cycle. Most people take on a mortgage with the long-term goal of eventually owning their home outright, not effectively renting from their lender indefinitely.
That said, this strategy isn't automatically right or wrong. For some households, including retirees who prioritize predictable, manageable cash flow over principal repayment, extending amortization can be a practical choice. With a well-coordinated estate plan and tax strategy, carrying a mortgage into later life can also make financial sense.
Key Advantages of Repeated Amortization Extensions
The primary advantage of repeatedly extending your mortgage amortization at every renewal is that lower monthly payments can free up money for everyday living, health care expenses, travel, or supporting family. For households on fixed incomes, or in communities where less costly housing options are limited and seniors' housing is expensive, preserving a familiar home while keeping payments small can maintain quality of life.
When using a re-advanceable mortgage (traditional mortgage and home equity line of credit combined), it can often make sense to keep savings available instead of putting them toward your mortgage, especially if you want to maintain financial flexibility. If worries about unexpected expenses like medical bills arise, having sufficient credit available on your HELOC can help ease those concerns.
Significant Disadvantages and Overlooked Risks
While there may be benefits to repeatedly extending mortgage amortization, the drawbacks can be equally significant but often overlooked. Extending your mortgage frequently slows down principal repayment and dramatically increases how much interest you pay over the life of your mortgage. Consequently, homeowners build equity much more slowly, which becomes crucial if they need to sell their house to cover care expenses or leave an inheritance.
Being house rich but cash poor can create difficulties if a partner becomes ill or unexpected caregiving costs arise. There are also practical issues with maintaining a home as someone ages. The physical work of home maintenance becomes more challenging, and expenses like repairs, renovations, landscaping, cleaning, or hiring help—combined with ongoing mortgage payments—can put serious pressure on a retirement budget.
Renewal-Specific Risks That Demand Consideration
Several renewal-specific risks deserve special attention. Every time you renew a mortgage, you're exposed to prevailing market interest rates. If rates have risen significantly, even resetting the amortization to 30 years may not reduce payments to your expected level, potentially causing immediate budget strain.
Generally, when renewing a mortgage in good standing with your current lender, you aren't required to go through a full requalification process. Still, lenders reassess your repayment ability at each renewal based on their current criteria. Even if a household was financially stable when first approved, changes like the loss of a spouse or reduction in overall income could lead to a lender requiring shorter amortization periods, higher payments, or in rare cases, a refusal to renew the mortgage altogether.
Regulatory and policy changes are typically unpredictable. Mortgage rules and underwriting requirements evolve, so approvals today may face restrictions tomorrow. Updates to stress-test rules, maximum amortization regulations, or lending guidelines, particularly for retirees or those with fixed incomes, could make ongoing amortization extensions less reliable.
Creating a Strategic Contingency Plan
Instead of viewing re-amortizing as a permanent solution, consider it a strategic option. When your payments are lower, put money aside in a separate savings account so you'll have funds ready if you need to make a lump sum payment on your mortgage, increase monthly payments if a renewal brings higher costs, or cover rental expenses if you need to move while selling your home.
There can be legitimate situations where carrying a mortgage into retirement is part of an overall financial plan. With a coordinated tax strategy and estate plan, households may decide to maintain investments that have favourable tax treatment (such as TFSAs), ensure available funds for long-term care, or structure inheritances in specific ways. In those circumstances, a mortgage can be a deliberate liability rather than an accidental burden.
Professional Guidance and Final Considerations
If you plan to carry a mortgage of any kind into retirement and old age, it's important to consult with estate, tax, and legal professionals to ensure everyone understands the potential consequences for both you and your heirs. Speak with a credit counsellor at a non-profit agency to help build a budget that allows you to pay off other debt and turn savings goals into reality. Document your decisions thoroughly so that your intentions are clear and your legacy may endure.
The bottom line: By choosing repeated mortgage amortizations, you gain short-term budget flexibility but may face greater long-term costs. Before making this decision, check that your insurance and benefits support your strategy. Set specific milestones—such as reaching a certain age, equity target, changes in family circumstances, or significant health events—that will prompt you to reassess your approach. Have open conversations with your family about your goals so everyone knows what to expect if tough choices are needed.
A mindful, intentional approach with regular check-ins will keep your household secure today and help ensure a stable financial future for years to come.
