Christopher Liew: Is your mortgage renewal going to shock you? What Canadians need to know

Many Canadian homeowners renewing their mortgages in 2025-2026 will face payment increases of due to sharply rising interest rates. Christopher Liew advises homeowners on how to prepare. (Getty Images / Pla2na)

Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.

Many homeowners could be in for an unpleasant surprise the next time their mortgage comes up for renewal.

Over the past five years, mortgage rates have climbed sharply from historic lows, leading to significantly higher monthly payments for many borrowers. For some, this could even mean getting priced out of their own home and having to look for alternative living arrangements.

Here’s a look at how interest rates have changed in recent years, where they could be going, and some of the driving factors behind mortgage renewal shock, so you can start to prepare financially.

How mortgage rates have changed recently

According to the Bank of Canada, many homeowners renewing in 2025 - 2026 will face payment increases ranging from 15 to 20 per cent. An unlucky 10 per cent of buyers could be facing payment increases of up to 40 per cent.

Mortgage rates in Canada have moved sharply over recent years. Historically, five-year fixed conventional mortgage lending rates ranged in the four to six per cent zone in the early 2020s. By 2023-2024, though, they began to climb as high as eight per cent. It’s since then dropped back down to around six per cent.

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While the current rates seem to have cooled slightly over this past year, most homeowners renewing this year, compared to their previous 2020 mortgage rate, will see a payment increase. The exception to this rule may be homeowners who’ve been overpaying their mortgage and have built more equity in their homes.

These shifts are primarily driven by the Central Bank’s policy rate, which pushes lenders to raise their mortgage offers. For many homeowners, a “low” fixed rate locked in a few years ago now looks generous.

Higher mortgages will affect all homeowners

This July, the CMHC reported that the average mortgage payment during the first quarter of 2025 was $2,086. For reference, homeowners with this current payment could face the following increases, depending on their mortgage renewals:

• 15 per cent increase: $2,399
• 20 per cent increase: $2,503
• 40 per cent increase: $2,920

With an increasing number of Canadians living cheque to cheque and falling behind on consumer debt payments, even a 15 per cent increase could force homeowners out of their home. Those who can’t afford the increase will either need to sell their home and downsize, be forced back into the rental economy, or may have to make significant budget cuts and find ways to increase their household income.

How to prepare for increased rates

While no one can predict exactly how rates will move, there are some steps that homeowners can take to soften the impact of a higher renewal rate.

Start by calculating what your payments could look like if your interest rate increases by 10 to 20 per cent. Most major lenders and mortgage comparison sites offer free calculators to help with this. Knowing your “shock number” early gives you time to adjust your budget and make informed decisions.

When it comes time to renew your mortgage, don’t automatically accept your lender’s first renewal offer.

Compare rates from banks, credit unions, and mortgage brokers to see if you can secure a better deal. Remember, banks and lenders are aggressively competing for renewals. Use that to your advantage.

Even a small difference in your rate can save you thousands over the life of your mortgage.

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If you think that higher payments will make you go over budget, consider asking your lender about extending your amortization period. This can reduce your monthly payments. However, keep in mind that it can also increase your total interest payments over time.

If you expect your payments to rise, consider using extra income from bonuses, side gigs, or tax refunds to build a cushion in advance. Setting aside three to six months’ worth of expenses in an emergency fund can make the adjustment period less stressful.

Final thoughts

If rates drop before your renewal date, then refinancing early could help you lock in a lower rate and save more money over time. That said, be sure to weigh any potential prepayment penalties against projected savings. A mortgage broker or financial advisor can help you calculate whether it’s worth it.

Ultimately, if you’re faced with a significant mortgage payment hike, then you may have to make some changes in your living situation. If your payment hike is more than you can afford, and you can’t negotiate it down, then you may have to sell your home and downsize or earn income by renting out a room as a short or long-term rental.