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Mortgage Renewal

Homeowners Facing Increased Mortgage Payments and High-Interest Rates | Mortgage Renewal Options

Thousands of mortgages come up for renewal every year in Canada. By March 2025, 31% of Canadian homeowner’s mortgages will be up for renewal. Mortgage rates have risen rapidly since March 2022 and as a result, many mortgage holders will see hefty increases in their interest rates and payments.

If your mortgage is up for renewal in the next 12-18 months, your payments may increase by 20% – 40%. You could pay several hundred dollars more every month just in interest costs. You may not be able to control interest rates, but there are several things you can do to reduce the financial pain of an increase.

Preparing to Renew Your Mortgage

Having time to explore mortgage renewal options can save you thousands of dollars. Knowing what to expect from your financial institution, the types of mortgages available and how to reduce your rates can make your mortgage payments more affordable.

Your financial institution

Most lenders will send you a renewal notice to advise you that your mortgage is coming up for renewal. Some lenders allow you to early renew your mortgage up to 150 days before it’s due.

By early renewing your mortgage, you can save money. If the rates increase after you renew early but before your actual renewal date, you’ll have a lower mortgage rate than if you wait. On the other hand, if you believe rates will stay the same or decline, you don’t need to renew early.

The mortgage renewal letter typically offers terms and rates you can choose. However, the rates on the letter are often the lender’s posted rates. Instead of accepting the rates they offer, you can call your mortgage holder and try to negotiate a lower rate.

If you’ve been comparison shopping, your lender may match a competitor’s rate. Reducing your rate by just half a percentage point can lower your mortgage payment. If you don’t contact your lender, they typically renew your mortgage automatically for a short term, like six months. A six-month mortgage rate can be very high. Therefore, it’s best to take action when you receive your renewal letter.

Types of mortgages

Most lenders offer different types of mortgages. Three common types are fixed-rate mortgages, variable-rate mortgages, and HELOCs (home equity lines of credit). Choosing the right type of mortgage can help you manage your payments.

Fixed-rate mortgage

A fixed-rate mortgage locks in your rate and payment for your chosen term. Terms typically range from six months to five years. Some financial institutions offer fixed mortgage rates for more extended periods. A fixed mortgage rate keeps your interest rate and payments the same for your chosen term. Once the term expires, your mortgage will be open for renewal again.

Variable-rate mortgage

A variable interest rate mortgage is tied to the prime rate. This rate is based on the lending rate set by the Bank of Canada. Variable-rate mortgages are often lower than fixed-rate mortgages initially.

However, the rate is not guaranteed. If the prime rate increases or decreases, the rate of your mortgage will increase or decrease as well. Variable-rate mortgages can keep your payment low when the prime rate doesn’t change much or decreases. If it increases, your payment will increase, too.

Home equity line of credit (HELOC)

A HELOC is a line of credit tied to the equity in your home. If you have enough equity in your home, you can convert your mortgage to a HELOC.

A HELOC rate is based on the prime rate, so it can be lower than a fixed-rate mortgage. The payment options can be flexible, generally requiring a minimum monthly payment of only the interest. HELOCs typically have no prepayment restrictions. So, if you want to aggressively pay down your mortgage by paying more, or if you sell your house, you will have no penalties or minimal penalties to do so.

One disadvantage of a HELOC is you need a lot of equity (35%) in your home to set up your entire mortgage this way. Another possible pitfall is you may get into a trap of paying interest only and never paying off the amount you owe.

Other mortgage renewal options

When your mortgage is up for renewal, you can change the original agreement. Two changes to consider to lighten the load of higher payments are to extend your amortization and to refinance.

Amortization is the length of time it will take you to pay off your mortgage. Common amortizations are 25 and 30 years when you first buy your home. Extending your amortization can lower your payments. You can discuss increasing your amortization with your lender to determine if this option is available.

Refinancing is setting up a new mortgage by using the equity in your home. Typically, there are fees to refinance your mortgage, such as appraisal and legal fees. Refinancing is often used to pay off household debt. If your debts are high, you can consolidate them into your mortgage so you have only one payment. Having only one payment can help streamline your finances and make your mortgage payments easier to manage.

Consolidating your debt into your mortgage, however, can cost you more in the long run because you are taking longer to pay off the debt you consolidated. It’s also important to avoid borrowing again. You don’t want to end up owing more than when you refinanced your mortgage.

What if You Can’t Afford Your New Payments?

Knowing when your mortgage is coming up for renewal can give you time to prepare for a payment increase. The renewal letter your financial institution sends usually includes what your new payments will be at the new rate. While the increase can be a shock, there are some things you can do to manage the higher amount:

  • Review your budget. Determine if there are things you can eliminate, like unnecessary or unused subscriptions. There may be other ways to reduce expenses, like shopping for better deals on phone plans, internet and insurance.
  • Consider refinancing your mortgage or increasing your amortization.
  • Calculate your household debt payments. If the payments are too high, find out if there are ways you can lower them. You may be able to consolidate them into one loan at a lower rate.
  • If the household and mortgage debt you have is too much, consider contacting a Licensed Insolvency Trustee. They can help by going through the options available to you that can reduce your debt load.

Will you lose your home?

The thought of losing your home is deeply upsetting. Having a home can represent peace, comfort, security and the fulfillment of a dream. But what can you do if you can’t make your mortgage payments? If you fall too far behind on your mortgage payments, your lender will begin the home foreclosure process.

Being unable to make your payments will result in a mortgage default. If you are behind on your payments or think you might be in the future, there are some options you can consider.

  • Work with your lender. Your financial institution may be able to refinance your mortgage to make your payments more manageable. They may have other options to help you catch up on your payments, like a temporary mortgage payment deferral.
  • Talk to an LIT. If you file a Consumer Proposal, you can reduce the amount you owe and have one manageable payment for your debt. A Consumer Proposal lets you keep your assets, including your home.
  • Another option is to declare Bankruptcy. There are Bankruptcy exemptions that can allow you to keep your home, depending on your circumstances.
  • Sell your property. Selling your property when your mortgage is up for renewal can keep you from paying an interest penalty. If you plan to sell, talk to your lender to find out how to pay as little as possible for fees and penalties.

Mortgage Renewal Help

The rapid increase in interest rates might be causing you to worry if your mortgage is coming up for renewal. The good news is our team of Licensed Insolvency Trustees at Adamson and Associates will work with you to find the best way for you to deal with your debt. We offer credit counselling and government-approved debt solutions. Call us today for a free consultation at 519-310-5646.

John Adamson, Licensed Insolvency Trustee Ontario

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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