Renewal Shock on the Horizon

Canadian homeowners are bracing for a wave of renewal shocks as roughly 60% of mortgages are set to reset between 2025 and 2026. New Bank of Canada analysis warns that while some borrowers may benefit from rate shifts, most—especially those on five-year fixed terms—are heading into significantly higher monthly payments.

The transition is expected to reshape household budgets across the country, influencing spending, saving, and even housing demand in the months ahead.

Fixed-Rate Borrowers Hit Hardest

Five-Year Fixed Terms:
Borrowers who locked in five-year fixed rates in late 2019 and 2020 are now facing 15–20% increases in their monthly payments compared to December 2024 levels.
Why So Painful:
These borrowers benefited from ultra-low interest rates during the pandemic, with many enjoying fixed mortgages under 2%. Renewals will now be in the 4–5% range, nearly doubling interest costs.
Impact:
On a $500,000 mortgage, a 20% increase could mean an additional $400–$500 per month in payments—enough to strain many middle-class households.

Variable-Rate Borrowers See Mixed Outcomes

Payment Declines Possible:
For those on variable rates, the story is different. After enduring years of sharp rate hikes, some will actually see relief, with renewal costs dropping by 5–7% as central bank cuts start to filter through.
Still Volatile:
However, many variable borrowers are locked into fixed-payment structures, meaning principal repayment has lagged and amortization periods have stretched, leaving long-term affordability questions.

Broader Market Implications

Consumer Spending Squeeze:
Rising mortgage payments are expected to pull money out of household budgets, slowing retail and discretionary spending.
Housing Affordability:
Higher renewal costs will weigh on affordability and could contribute to further downward pressure on home prices, especially in overheated markets like Toronto and Vancouver.
Bank Risk:
While households will feel the pain, analysts note that Canada’s banks remain relatively shielded, with most mortgages under 55% loan-to-value (LTV) ratios. This reduces default risk even if housing values fall further.

Why It Matters

For homeowners, the coming renewal wave is a critical financial test:

Budget Planning Needed: Families should model payment increases well ahead of renewal dates.
Shop Around: Renewal doesn’t mean automatic acceptance of your bank’s first offer—brokers and alternative lenders may provide relief.
Hybrid & Short-Term Options: Blended strategies, such as hybrid mortgages or shorter-term fixes, could help manage risk in a volatile rate environment.

As 2025 approaches, mortgage renewals will become one of the most important household financial events in Canada. Whether relief or strain awaits depends largely on whether borrowers locked in low fixed rates—or have been riding the ups and downs of variable loans.