3 Ways to Tackle a Budget-Busting Mortgage Renewal

3 Ways to Tackle a Budget-Busting Mortgage Renewal

Three- and five-year fixed posted mortgage rates are higher than they have been since 2010, while variable rates have climbed 4.25% in less than a year. If you approach your mortgage renewal dateyou might be facing a nightmare scenario.

In a vacuum, high rates would be enough to stretch homeowners’ finances. But with decades of high inflation eroding incomes, it becomes even more difficult to pay what could be dramatically higher mortgage payments.

“Anxiety levels are definitely much higher this year, compared to other years,” Chris Kolkinski, a Saskatoon-based iSask Mortgage broker, said in an email.

But anxiety is not despair. Anxiety usually means there are options – and there are plenty to consider if you’re nearing a tough renewal and need help paying off your next mortgage term.

Be a good negotiator

“I’ve seen some banks currently offering nearly 2% more than the average five-year fixed mortgage rate,” Kolinski said. “Banks are counting on landlords panicking about rising rates and pushing them to ‘lock in now before rates go up even more!'”

Assume that the initial renewal offer from your current lender is not the best and reject it. You don’t have to accept it or renew with them. Ask for a better rate and see what happens. Your lender may be willing to negotiate rather than watch you take your mortgage and the next few years of interest payments elsewhere.

Your lender has a big advantage this year, though: if you decide to renew with another lender, you’ll have to requalify. It means to pass a mortgage stress test based on today’s high rates. Depending on your renewal rate offer, this could put your minimum qualification rate between 6.5% and 7.5%, or even higher.

But don’t let that put you off asking your lender to lower their renewal rate and take a look at what the competition is offering.

Find relief through refinancing

If you have reached the end of your mortgage term, you can assume that you are a responsible borrower with several years of accumulated equity in your home. If that’s true, you should be able to refinance your mortgage. Refinancing can offer two paths to a more manageable mortgage term.


If you have ever played with a mortgage payment calculator, you’ll know that longer amortization periods mean lower monthly payments. Extending the total term of your mortgage is an option when refinancing.

“If you have 15 to 20 years left [on your mortgage]you may want to consider re-amortizing and bringing your mortgage back to 25 or 30 years to have more manageable payments,” says Chris Allard, mortgage broker at Smart Debt Mortgages in Ottawa.

“We don’t want to take longer to pay off our mortgage, but first and foremost we need to make sure we’re comfortable with our current monthly cash flow,” says Allard.

If you’ve made accelerated weekly or biweekly payments on your mortgage, Kolinski said reamortization could be as simple as increasing your amortization to what it would have been had those extra payments not been made. This strategy is more common when switching to a new lender.

Tap into your capital

Another option when refinancing is to convert some of your home equity cash through a home equity loan or line of credit. The funds can then be used to pay off other debts or set aside (perhaps in a GIC or high-interest savings account) as an emergency fund.

“By paying off credit cards, lines of credit, or auto loans, we either save on interest or save on cash flow,” Allard says.

As with repayment, borrowing from equity will increase the overall size of your mortgage, but the financial peace of mind it brings could be invaluable.

Remember that the refinancing process is more complex than renewal. You may need to pay legal fees and have your home appraised, so make sure your finances are ready for a modest hit.

Beware of private loans

If your financial situation has deteriorated or you have fallen behind on your mortgage payments, traditional lenders may not offer you a renewal. In these rare cases, private lenders and the short-term financing they offer can seem like a beacon in the dark.

But borrowing from a private lender can cast a shadow over your finances.

“I would try to avoid going with a private lender on renewal if you can,” Kolinski said. “Rates with private lenders are well over 10% right now, so it can be extremely expensive.”

Private lenders may also not offer much flexibility. If you are unable to repay your private loan on time, you will need to renew and incur renewal fees which can be steep – a risky option if your credit situation is already precarious. Private lenders may also be quicker to seize your home than traditional lenders.

If a private lender is your only renewal option, align yourself with a reputable company recommended by an experienced mortgage broker. There are plenty of private lenders in Canada, and you don’t want to entrust your financial future to someone who is only there for the fees.

A teachable moment for homebuyers

Hopefully renewal anxiety will be a temporary state of mind for Canadian homeowners. But there are lasting lessons that all buyers – current and future – can learn from this period of rate shock.

  • There is no crystal ball. “We can’t predict rates,” Kolinski said. “When you get a mortgage, you have to look at everything – not just the rate – to make sure you’re getting the best product for your needs.”
  • Reevaluate your budget — often. “If you’re constantly reviewing your budget, I think you’ll probably find a way to stick to it. If you don’t know what your budget is, it’s easy to miss your lifestyle choices and spending,” says Allard.
  • Variable rates are not the devil. “There are pros and cons to both fixed and variable rates, and they should be thoroughly discussed with your mortgage advisor,” Kolinski said. “In fact, I’m 99% certain that I’ll take a variable rate when I buy a new house this summer.”

About the Author

Jarvis clay

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. So far, his entire career as a professional writer has revolved around real estate. Prior to joining NerdWallet, he was an editor and senior editor for four publications, including the nation’s leading mortgage industry website, Mortgage Broker News. Clay has written 30,000-word reviews of the Canadian real estate investment market, interviewed the most influential industry leaders and analysts, and helped choose the best real estate agents and mortgage brokers in the country. He is based in Toronto, Ontario.


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