A No-Tears Guide to Mortgage Renewals

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Roughly half of Canadians have five-year fixed-rate mortgages. For about the past decade, having a mortgage that reset every five years wasn’t a problem, since interest rates hovered around 1%. Well, these days, most banks are charging around 5.5%. That means if you borrowed $500,000 to buy a home five years ago, your mortgage payment could go up by $1,250 a month if you locked into another five-year fixed term right now. And let’s just say people are pretty panicked about such possibilities; about 2.2 million people who signed mortgages at low rates are facing renewals in 2024 and 2025. Fortunately, you can do a few different things to get ready for a rate reset and mitigate the horribleness. We recently spoke with David Larock, a veteran Toronto mortgage broker, who explained how you can manoeuvre your way to a less painful monthly payment.

Pick up the phone. When your mortgage rate resets, it’s a chance to negotiate a new agreement with your current lender. But many homeowners don’t bother, says Larock. He learned this when he was a mortgage lender: “When we’d send out renewal letters, the first letter offered our posted rate — which would be a crazy high rate that wasn’t remotely competitive. Yet a third of the borrowers signed the letters without calling us.” And banks really love when that happens. Painful news for introverts: Larock says picking up the phone for a five-minute call with your lender can often get 1.5% knocked off your renewal rate. (On a $750,000 mortgage with 10% down, the difference between a 6.5% and 5% interest rate would amount to savings of nearly $9,000 per year.)

Shop around. When your rate resets, you can go out and find a better deal elsewhere and refinance penalty-free. That’s why your current lender will start pushing you to renew months beforehand. “Lenders will play on the fear that you should lock in early to avoid [the] risk” that rates will rise further, Larock explains. Don’t fall for it. Comparison shop with other banks or credit unions before signing any contract. Bear in mind that if you lock into another five-year fixed term (like a lot of folks do), you can refinance later if rates fall. But a word of caution…

Be sure to read the fine print. The biggest mistake Larock sees is buyers skimming over a contract’s small print. Homeowners will choose one five-year fixed mortgage over another to save 0.05% on interest, he says, but then two years later, they’ll realize that the penalty to switch lenders midterm is $10,000. Ideally, you want to avoid any contract that carries a steep penalty for breaking your mortgage so, if need be, you can switch lenders down the road with minimal expense.

Stretch out your payments. OK, so let’s say you decide to stick with your current lender for one reason or another. In that case, if you requalify, you can ask to extend the loan’s amortization period and essentially stretch out the length of your contract. You might be able to extend your current mortgage so that it’s amortized over 30 years, say, instead of 25. You would end up paying more interest over time that way, but your monthly mortgage payment could get a little cheaper.

Written By

Sarah Rieger

Sarah Rieger is a senior news writer for Wealthsimple Media, and co-host of the TLDR podcast. She was previously a reporter at CBC News and editor at HuffPost Canada. You can reach her at srieger@wealthsimple.com.