Canadian Homeowners face their biggest mortgage financial test yet

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The Bank of Canada warns that the next wave of mortgage renewals could pose a major challenge for many families. Homeowners who secured mortgages in 2020–2022 are now facing significantly higher renewal rates. For those with variable-rate mortgages, the situation can be even tougher; some owe more now than when they started.

During the pandemic, buying a home felt like a rare opportunity. Mortgage rates were at historic lows, and house prices kept rising, so buyers often stretched their budgets and paid over asking price, confident the market would continue to rise. Investors bought multiple properties, thinking refinancing would always be simple, but as we now know, none of those assumptions were guaranteed.

Now, many homeowners are surprised by a vastly different financial reality. Interest rates are much higher, property values (especially in Toronto) have fallen, and some families are seeing their monthly payments rise more than expected.

Homeowners up for renewal could see their payments rise by about 15% on average. While many will manage the increase, some will struggle, especially if they bought at the peak, borrowed the maximum, took on extra debt, or have seen their home lose value.

If you bought a home in 2022 with a small down payment and it is now worth less, refinancing is much harder because banks look at the current value and how much you still owe. Currently, about 9% of homeowners in Toronto may be unable to refinance at renewal, and if home prices continue to fall, that number could rise even further.

Homeowners with certain variable-rate mortgages have experienced a negative amortization situation in which their loan balance has not decreased as expected, and in some cases the repayment period has become much longer. Normally, each payment reduces both principal and interest, but with fixed payments during low-rate years, rising rates meant payments sometimes did not even cover the interest. The unpaid amount was added to the mortgage balance, or the term was extended, so some homeowners now owe more than they started with or face much longer repayment periods.

Some homeowners assume that if they have made their payments, renewing will be straightforward, but it is not always so simple, especially if your mortgage has negative amortization. In these cases, lenders may require higher monthly payments, a shorter repayment period, a lump-sum payment, or even a complete change to your mortgage terms. Even if you have a fixed-rate mortgage, get ready for much higher rates at renewal.

If your mortgage renewal is approaching, stay calm and plan early. Meet with a mortgage professional 6 to 12 months before your renewal date to explore your options.

Pay down debts, such as credit cards and lines of credit, to strengthen your financial position. Build up your savings so you are prepared for any changes to your job or income and keep making payments on time to maintain a good relationship with your lender.

Ask your lender whether your mortgage has negative amortization and what your renewal options are. Be cautious about selling in a slow market, as it could lead to a loss, because everyone’s situation is unique. Seek professional advice before making major decisions. An experienced mortgage broker can compare lenders, break down your options, and suggest solutions you may not have considered.

The current wave of mortgage renewals is a wake-up call that real estate should be treated as a long-term commitment, not a quick way to make money. While most homeowners will manage these changes, those who bought at the market peak or carry negative amortization may face greater hurdles.

Planning, keeping your budget realistic, and seeking expert advice early can help ensure your renewal is a manageable transition, not a financial crisis. This time around, choose variable with an option to lock in the rate when you are comfortable with the rates.