If this is a feeling that you have, you aren’t alone. According to the Bank of Canada, about 60% of Canadian mortgages were expected to renew in 2025 and 2026. The issue that faces so many of these borrowers is that, compared to what was available in 2020 and 2021, interest rates are substantially higher now than they were then. The same Bank of Canada data speculated that people who had a five-year fixed-rate mortgage that was renewing in 2025 or 2026 could expect to see their mortgage payment be about 15-20% higher than what they were paying previously, while those renewing a variable rate mortgage would see a payment decline of about 5-7%. While you can’t go back in time to those historically low mortgage rates from the early 2020’s, what you can do is make sure that when you see your mortgage renewal, you have a clear game plan on how you are going to handle it to make sure that you get the best deal possible for yourself and your family. With that in mind, here are some tips on things you can do if your mortgage payment jumps when you are at your next renewal.
In This Article
- Your Renewal Letter is an Offer. Remember That.
- Now is the Time to Shop Around
- Options to Consider
- The Bottom Line
- Talk to Your Mortgage Broker
Your Renewal Letter is an Offer. Remember That.
This is a key point that so many people forget. The letter that your current lender sends you leading up to your renewal is an offer for what they are proposing. If your mortgage is held by one of the big banks in particular, you need to understand that this first proposed rate rarely is the best rate that they can offer you. They expect negotiation, and to allow for this, they will often propose a rate that allows them wiggle room, meaning they offer a higher rate than the minimum that they could actually provide; you just need to know this and negotiate to get there. You are under no obligation to accept the proposed renewal rate. If you are trying to handle the renewal on your own you need to conduct some research, find out what rates other lenders are offering and if they would be options for your loan. Better yet, if you’ve been working with a mortgage broker, have your broker survey all the options available to you. A mortgage broker can help you figure out what the best solution for your personal situation is. With the extra effort from you and your broker you could end up saving yourself thousands of dollars.
Now is the Time to Shop Around
Renewal points are often the easiest times to change lenders. There is some information that you need to know here. You could face issues trying to change lenders if you:
- Have had significant changes in your finances. This means that if your income has dropped, your debt load has increased, or your credit score has gotten worse, you could face difficulties in moving to a new lender.
- Your property values have changed. With the decrease in home prices, you need to know that you need to meet the new lender’s loan-to-value ratio. This typically means that the lender won’t give you more than 80% of the value of your home in the form of a mortgage. So if your property has declined in value, this ratio may be problematic.
- Have restrictions in your existing mortgage contract. Not all mortgages are created equally. In certain cases, you may have something like a collateral charge applied to your mortgage. Knowing this in advance what fees and charges are applied to your mortgage can help you avoid surprises. Also, this is another area where working with a broker can really shine through for you as the client. Your mortgage broker has relationships with many lenders and can help you avoid unexpected fees.
So while the renewal point is an ideal time to shop around, you need to understand that moving to a new lender may not be an option that is available or makes sense depending on your personal financial situation and how your existing mortgage is set up.
Options to Consider
If you see the renewal for your mortgage and the payments have spiked significantly, what you may be able to do is help by considering a few options:
- You could look to adjust your amortization schedule. If you extend your mortgage amortization to a longer period, you will see that your monthly payments will decrease. The downside to this move is that it will cost you more in interest over the length of your mortgage, but sometimes the immediate cash flow relief is worth this trade-off.
- Are you able to make a lump sum payment? If you have money in savings and your mortgage allows you to make lump sum payments, it may help to pay down the principal on the mortgage with a lump sum. How this helps is that it reduces the amount of the mortgage that you are now renewing at the higher rate. Just remember to try and not put so much into the lump sum payment that you impact your financial plan by using up money earmarked for things like your emergency fund or savings for future goals.
- What about your rate strategy? At your renewal point, one of the choices that you will face is whether to choose a fixed rate or variable rate product. Remember here that the choice should be based on your risk tolerance and cash flow stability, not simply which option is providing you with the lowest rate at the time of renewal.
- Is it time to refinance your debt? If you are battling high-interest debt like credit cards, you may want to consider improving your monthly cash flow circumstance by consolidating higher-interest debt into your mortgage. You will need to requalify to do this, but the changes in your monthly cash flow could help make the increased mortgage payments make sense.
What you see is that there are options available to you that could help improve your monthly cash flow even when you are facing higher mortgage payments than you had prior to your renewal. The key to many of these decisions is having a strong financial plan that includes strategies for managing your cash flow to make sure that your personal finances are set up in a way that you are maximizing the efficiency of your money.
The Bottom Line
We are all facing the same thing right now. Higher interest rates, inflation, and global influences are increasing everyone’s cost of living. We see that smart borrowers are taking steps when they get that mortgage renewal letter to make sure that they get the best deal available for their personal situation. To take a strong approach to your mortgage renewal, you need to:
- Be aggressive when shopping for and negotiating interest rates.
- Negotiate hard with your current lender. Remember that the first letter is an offer; rarely is that in the form of a ‘take it or leave it’ option. You are allowed to survey the market and request better rates based on what you could get elsewhere.
- Don’t overdo anything that impacts other areas of your financial plan without careful consideration first.
- Stay flexible. Maybe the answer for you is not to take the standard 5-year mortgage or to change from a fixed to a variable rate mortgage. Make sure that the solution you choose works for your situation, not the lenders.
Talk to Your Mortgage Broker
This is highlighted again and again if you’re a regular reader of this blog. You should be talking to a mortgage broker, not someone who works for the big banks. When it comes to negotiating rates, a big bank mortgage agent has access only to the products that their employer provides. They are also under big pressure from their employer to get you to pay the highest rate that they can because that means more profits and more targets being hit at the local branch level. A big bank employee answers to their employer first and the client second. When you talk to a mortgage broker, you get a completely different experience. A mortgage broker is an independent advisor who can shop many different lenders for you and isn’t compensated based on getting you to take the highest interest rate that they can. They are there to work for you, getting you the best deal that fits your unique situation. If you have a mortgage renewal approaching and want to get expert advice from highly qualified professionals, reach out to the team at Strata Mortgages. We can help guide you through the process, making sure that you get the best deal for yourself.
