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What to do if your mortgage is up for renewal and you're seeing an ugly interest rate

Dec. 12, 2022
5 mins
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This article has been updated from a previous version.

2022 hasn’t exactly been a reassuring year for mortgage holders. While those who locked in a low five-year fixed mortgage just before interest rates skyrocketed are likely breathing a collective sigh of relief, mortgage holders approaching their renewals may be panicking.

About 36% of Canadian mortgages were up for renewal in July, when the Bank of Canada delivered a shocking 100-basis-point hike to its overnight interest rate — the biggest increase since 1998. In January, the Bank of Canada’s policy rate was 0.25%. Today, it sits at 4.25%, and while the Bank has hinted that this could be its final increase for a while, it remains ready to lift rates again in 2023 if the circumstances require it.

These figures may sound abstract, but if you have a variable-rate mortgage, they govern how much your monthly mortgage payments will fluctuate.

If your mortgage is soon up for renewal, chances are good you’re seeing an interest rate you don’t like. If that’s the case, what are your options?

Renew your mortgage early

According to Victor Tran, mortgage expert at RATESDOTCA, anyone looking to renew a mortgage soon should do so before the deadline comes up to lock in a better rate. “A majority of lenders will allow their customers to renew as early as four months prior to the [mortgage] maturity date,” he explains. Some even allow customers to renew half a year out.

The rationale behind renewing early is simple. Each of the Bank of Canada’s last seven major meetings ended in a decision to raise interest rates, and there is a small chance they may hike some more in 2023 before holding the rate and waiting to see what inflation does. Renewing early allows you to avoid the possibility of an even higher mortgage rate than what’s currently on offer.

The market moves fast these days, but processing a new mortgage application – or switching lenders – does not. If you don’t like what you’re seeing upon renewal and decide to take your mortgage elsewhere, “It takes roughly about five to six weeks to complete a mortgage transfer from the time you apply,” Tran says. “So, it’s always good to give yourself a bit of time.”

Use your loyalty to get a better mortgage renewal rate

If you happen to have a lot of financial products – perhaps a chequing or savings account, GICs, or investments – with the same lender you’re renewing your mortgage with, your customer loyalty becomes a valuable bargaining tool. Tran says some of his customers have brought up the possibility of moving all their banking services over to another provider if their current one can’t beat their proposed interest rates – and it can work.

“Of course, the customer has to play hardball,” he says. “When you have that many assets with one particular institution, you have a lot more power.”

Plus, Tran says, mortgage renewal specialists who work for lenders are encouraged by their bosses to retain as many customers as possible. They might have a “take-it-or-leave-it” approach to a single mortgage renewal, but the possibility of losing your mortgage and all your other accounts won’t look good on their annual performance review.

Consider refinancing your mortgage with a new lender

It may seem tempting to simply switch lenders if your current one isn’t giving you the rate you’re looking for, but that isn’t easy in today’s mortgage rate environment. Rising interest rates have made the mortgage stress test even more difficult to beat.

The mortgage stress test requires homeowners to prove they can make monthly mortgage payments at a rate of two percentage points higher than whatever their bank has offered them, or at the Bank of Canada’s qualifying rate of 5.25%, whichever happens to be higher. Intended to prevent homeowners from locking into mortgages they couldn’t afford in a rising interest rate environment — like the one we’re in now — this rule means some homeowners simply cannot qualify with another lender.

“It’s much more difficult for borrowers to switch their mortgage out to a different lender,” Tran says. “A lot of the current lenders know that.”

When refinancing a mortgage homeowners still need to pass the stress test and will be on the hook for any legal fees associated with refinancing. (Some lenders will cover the legal fees for a new client switching from another lender, however.) Tran says refinancing can be worth it if you need to pay off higher interest debt or want extra cash for renovations.

The golden rule of mortgage renewals in Canada

As with all major financial decisions, the best advice Tran – or any mortgage broker – can give you on renewing your mortgage in these turbulent times is simple: do your homework.

“Most people will wait until the last minute to take care of the renewal or won’t bother shopping around,” he says. “They’ll simply sign with the same lender again.”

Even if switching lenders isn’t viable for you, explore all your options. Find your best mortgage rates from the leading brokers on the market and get a second (or third) opinion – whatever gives you an edge when you sit down with your mortgage broker to renew. from the leading brokers on the market and get a second (or third) opinion – whatever gives you an edge when you sit down with your mortgage broker to renew.

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Compare Mortgage Rates

Engaging a mortgage broker before renewing can help you make a better decision. Mortgage brokers are an excellent source of information for deals specific to your area, contract terms, and their services require no out-of-pocket fees if you are well qualified.

Here at RATESDOTCA, we compare rates from the best Canadian mortgage brokers, major banks and dozens of smaller competitors.

Brennan Doherty

Brennan Doherty is a Toronto-based writer. His work has appeared in Toronto Star, VICE, the National Post, and elsewhere. Once upon a time, he called Calgary home.

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