Preparing for Mortgage Renewal Shock in 2025

Mortgage rates have come down from their peaks, but the threat of mortgage renewal shock still looms for many homeowners.

More than 1.2 million mortgages will be up for renewal in 2025, according to the Canada Mortgage and Housing Corporation

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. Homeowners renew their mortgages all the time, but historically low rates during the COVID era make a 2025 renewal costlier than usual.

In April 2020, once mortgage rates had plummeted, the average interest rate for insured fixed-rate mortgages with terms of five years or more was 2.65%

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. The lowest five-year fixed rates you can find today are around 4.1%.

Paying an additional 1.45% on a $400,000 mortgage would increase a borrower’s monthly mortgage payment by about $300 dollars. Add in the higher cost of living and renewing your mortgage this year could put severe pressure on your finances.

Understanding what a mortgage renewal entails in 2025 can limit renewal shock and create an opportunity to find the ideal mortgage for your current needs.

Mortgage renewal rates: What can you expect?

If you haven’t received a renewal offer from your lender yet, you’re probably wondering what your renewal rate will be. That’s a tough question to answer accurately, but a little data can provide some context.

Large banks tend to base mortgage renewal rates on their posted mortgage rates, which can be quite high. The average posted rate on a five-year fixed-rate mortgage at Canada’s chartered banks was 6.49% as of January 6, 2025

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You should never pay a bank’s posted rate, though. Assuming you’ve made your mortgage payments on time and are in good financial shape, your lender should be willing to negotiate. You might eventually be offered a rate more in line with their discounted rates. Both five-year fixed rates and three-year fixed rates can be found for less than 4.25%.

Will renewal rates rise or fall in 2025?

It’s difficult to estimate where all rates will be in the coming months. Fixed mortgage rates are determined by bond market activity, which can be unpredictable. Variable mortgage rates, which are currently as low as 4.3%, are set for further declines.The extent of those declines depends on how enthusiastically the Bank of Canada slashes its overnight rate this year. Variable rates could fall by another 50-100 basis points by the middle of 2025.

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Mortgage renewal tips

Here are five approaches for getting a better deal on your mortgage renewal.

1. Shop around

It takes minimal effort to renew with your current lender, but if their initial renewal offer includes a painfully high rate, exploring other lenders could save you a lot of money.

Comparing mortgage offers doesn’t take much time. Type “mortgage renewal rates” or “current mortgage rates” into Google, note the most appealing rates and reach out to the lenders or brokers who provide them.

If you do decide to renew with a different lender, know that you’ll have to go through the application process again and qualify for a new mortgage. Requalifying shouldn’t require any more effort than the initial mortgage process. Don’t let the idea of switching lenders at renewal intimidate you.

2. Use your prepayment privileges

One path to a more affordable mortgage is by making a larger down payment and borrowing less. You can apply the same logic to a renewal by paying off as much of your mortgage as possible prior to starting your next mortgage contract.

Many lenders allow you to prepay a certain amount of your mortgage each year by increasing your monthly payment or by making lump-sum payments. If this is part of your mortgage contract, and you have the cash available, a prepayment could help make your renewal more manageable.

3. Re-amortize

Extending your amortization period at renewal can result in smaller monthly payments and make your mortgage more affordable — in the short-term, at least.

Over time, however, re-amortizing can be a risky strategy. It can generate years of additional interest charges and potentially cloud your financial future. If re-amortizing means paying off your mortgage when you’re 60 instead of 55, for example, it could impact your retirement plans.

Let’s assume you have 15 years left on a mortgage worth $350,000. Opt for a five-year fixed term at a renewal rate of 4.5% and your monthly mortgage payment would be $2,670. If you extend your amortization to 20 years, your monthly payment would be $2,206.

When you pay off your loan over 20 years, you’d save $464 per month — but pay almost $180,000 in interest. With a 15-year amortization, your total interest cost would be just over $130,000.

To avoid the extra interest, you could extend your amortization for a single term and return to its original length the next time you renew.. However, your payment will still increase when you eventually trim your amortization period, so you’ll really just delay the renewal shock you’re currently trying to avoid.

4. Access cash with a refinance

A mortgage renewal can become more of a refinancing opportunity if you turn some of your home equity into cash via a home equity loan or line of credit. The funds can then be used to pay off other debts or set aside (maybe in a GIC or high-interest savings account) as an emergency fund.

By paying off your credit cards, lines of credit or car loans, you can save on interest or improve your household’s cash flow.

As with re-amortizing, accessing equity will increase the overall size of your mortgage, but the financial peace of mind it brings could be invaluable.

The refinancing process is more involved than renewing. You may need to pay legal fees and get your home appraised, so make sure your finances are prepared for a modest hit.

5. Be careful if renewing with a private lender

If your financial situation has deteriorated or you’ve fallen behind on your mortgage payments, mainstream lenders may not offer 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 long shadow over your finances.

Because they’re often a last resort for borrowers with credit issues, private lenders tend to charge all of their clients high mortgage rates. If you aren’t able to pay off one of these private loans on time, you’ll have to renew and incur what can be steep renewal fees — a risky option if your financial situation is already shaky. Private lenders might also foreclose on your home more quickly than mainstream lenders.

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

Good news: Renewal switches may skip the stress test

There’s even more reason to compare renewal offers in 2025: No more mortgage stress test when switching to a new lender.

On November 21, 2024, the Office of the Superintendent of Financial Institutions exempted uninsured mortgages from the stress test when renewed as part of a “straight switch,” meaning no changes to the loan amount or amortization period.

A year earlier, as part of the federal government’s Canadian Mortgage Charter, the stress test was waived for insured homeowners renewing a mortgage with a different lender.

Prior to OSFI’s guidance, lenders had little reason to offer mortgage clients competitive rates upon renewal. Borrowers could choose to accept their current lender’s offer or apply with a new one, a move that triggered a mortgage stress test that added another 2% to their minimum qualifying rate.

With that risk in mind, borrowers couldn’t be blamed for re-upping with their original lender, even if it meant accepting a more expensive renewal rate.

Removing the stress test from the equation should inject more competition into the market, and theoretically lead to lower renewal rates across the board. To make the most of this increased choice, you may want to consider working with a mortgage broker, who can help you access and compare a greater number of mortgage offers.