Rates Expected to Stay Elevated, Renewals to Hit Many Homeowners Hard

Canadian Homeowners Face Steep Payment Hikes at Renewal

A fresh analysis from the Bank of Canada warns that a large wave of mortgage renewals in 2025 and 2026 will deliver a financial shock to many Canadian households, even if interest rates remain relatively stable in the short term.

The report estimates that about 60% of homeowners with five-year fixed-rate mortgages will renew during this two-year period — and most will see their payments rise significantly.

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The Numbers at a Glance

• 2025 Impact: Monthly payments are projected to be 10% higher on average compared to December 2024 renewal levels.
• 2026 Impact: An additional 6% increase is expected for renewals that year.
• Variable-Rate Borrowers: Many who locked into fixed terms during pandemic lows will now face today’s higher rates.

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Why the Jump?

The main driver is the gap between the ultra-low rates from 2020–2021 and the higher interest rate environment that has persisted since the Bank of Canada’s tightening cycle. Even though policymakers have paused rate hikes, 5-year fixed mortgage rates remain well above 4.5% for most borrowers.

Bank of Canada researchers also noted that inflation uncertainty is keeping the central bank cautious about cutting rates too soon — meaning elevated borrowing costs may linger.

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Who Will Be Hit the Hardest?

1. First-Time Buyers from 2020–2021
   Many purchased at peak pandemic prices and are now renewing into higher rates while still carrying large mortgage balances.
2. Households With High Debt-to-Income Ratios
   Those who stretched their budgets to qualify for larger homes will feel the payment hikes most sharply.
3. Borrowers Without Prepayment Buffers
   Canadians who have not made lump-sum payments or increased monthly contributions will face the full brunt of higher rates.

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Strategies to Prepare for Renewal

• Shop Around Early: Compare offers from multiple lenders at least 4–6 months before your term ends.
• Consider Blended Rates: Some lenders allow you to “blend” your current lower rate with today’s higher rate to ease the jump.
• Adjust Amortization: Extending your amortization period can reduce monthly payments, though you’ll pay more interest over time.
• Refinance Strategically: If you have other high-interest debt, consolidating into your mortgage may improve cash flow.

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Why It Matters

The BoC analysis underscores a critical shift in Canada’s housing finance landscape — affordability pressures won’t just come from home prices, but from sustained higher rates. For many, the next two years will be a test of financial resilience.

Mortgage brokers and financial planners are urging homeowners to plan renewals proactively and avoid waiting until the last minute, when options may be limited.

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💡 Expert Tip: Even if you’re a year away from renewal, running the numbers now can help you set aside extra cash or adjust your budget gradually.