According to a recent Canadian Mortgage and Housing Corporation report, 1.2 million Canadians are facing a mortgage renewal in 2025. Canadians who took out new fixed mortgages or renewed them around 2021 have been paying near-rock-bottom per cent interest rates. In fact, 85 per cent of those 2021 mortgages were signed when the Bank of Canada’s rate was at or below one per cent, starkly contrasting to the current rate of around 3.50 per cent.
As a result, borrowers renewing their mortgages this year can anticipate monthly payment increases of 25-54 per cent. For Canadians already struggling financially, such a significant change could make it even more difficult to manage day-to-day expenses or save for the future.
Here are some tips on how to prepare for higher interest rates if your mortgage is soon up for renewal.
1. Research Early
One to three months before your mortgage renewal date, begin exploring your options. You don’t want to leave the task of shopping around for a mortgage renewal rate until the last minute.
Some mortgage holders will opt for renewing with their current lender – usually because it’s quick and easy. However, taking the time to research alternatives could result in substantial savings in the coming years.
After all, switching providers often results in better interest rates and mortgage terms. This is because your current provider may be less motivated to offer competitive terms since they already have your mortgage business.
Remember that working with a new lender will involve completing a new mortgage application, including requalification. You’ll have to provide documentation, like:
- A copy of your mortgage renewal letter,
- Proof of income,
- Proof you own your home, and
- Proof of property insurance.
The new lender may apply different criteria than your original lender to determine if you qualify for a mortgage, too. A professional appraisal of your property may be necessary to assess its current market value. In addition, setup fees and other administration fees may apply.
Look into working with an independent mortgage broker, a professional with access to multiple lenders. This professional may obtain a lower rate by leveraging your existing offer.
Some lenders are more competitive than others at specific times regarding attractive rates and terms. Since each mortgage broker operates with different commission structures and incentives, doing your due diligence is crucial.
If you choose to remain with your current lender, at least negotiate their offer. Your renewal letter – which you’ll likely receive 30 days before your mortgage term ends – rarely has the lowest rate available.
2. Strengthen Your Financial Position
The Bank of Canada predicts that the average borrower may need up to four per cent more pre-tax income to afford new mortgage payments. Although some borrowers will have income growth to mitigate the impact of higher rates, others will have to find creative ways to manage.
Start by creating a cash flow plan to determine your budget’s optimal mortgage payment range. Ideally, you want a mortgage payment that allows you to manage your housing costs while still enabling you to save for emergencies and retirement.
Estimate how much more your new mortgage payments will be upon renewal. Once you have this figure, see if you can save that additional amount now. Some strategies to achieve this include adjusting your discretionary spending and increasing your income.
While you still have ultra-low interest rates, you should pay down as much of your high-interest debt as possible. Credit cards, private loans, and car loans are great places to focus your attention.
By reducing your high-interest loans, you’ll better manage higher interest rates after mortgage renewal.
3. Review Additional Options
It’s more crucial than ever for mortgage holders to understand their options at renewal time. To reduce the impact of potentially higher payments, consider the following:
- Lump Sum Payment: Think about making a lump sum payment or increasing your monthly payments to lower your mortgage balance before renewal.
- Refinancing: By refinancing with your existing lender, your amortization period can extend up to 30 years. You’ll need at least 20 per cent equity in your home, and legal fees or an appraisal may apply, but this option lowers your monthly payments.
- Shorter Terms: Rather than signing up for a full 5-year term, consider a shorter term, like 2-3 years. Short-term rates are usually higher; however, they present an opportunity to renew at better rates sooner.
- Variable Rates: The Bank of Canada has already made several recent interest rate cuts, and experts predict more to follow. Unlike a fixed mortgage, variable-rate mortgages can lead to lower payments if rates drop during the term.
4. Meet With a Debt Solution Professional
Climbing auto loans and credit card delinquencies are evidence of countless Canadians’ current precarious financial situations. Yet, over two million homeowners are preparing to renew their mortgages in 2025 and 2026 at higher rates than they’re used to.
Consulting a financial professional for budget or debt reduction assistance can ease the stress of mortgage renewal shock. Schedule your free counselling session with our specialists today.
