Mortgage Payments Rising at Renewal? How to Cut Your Costs

Many Canadian homeowners whose mortgages come up for renewal by 2026 are facing the prospect of significantly higher monthly payments. With interest rates having risen since the lows of 2020–2021, some households could see their mortgage payments increase by 20% to 40%. But the situation is not uniformly dire. David Larock, a mortgage broker with Integrated Mortgage Planners in Toronto, notes that homeowners have several options to manage higher payments. The most important step is to speak with a mortgage professional early so you can review all possible strategies and avoid making rushed decisions.

Who’s facing higher mortgage payments?

The effect of rate increases depends largely on the type of mortgage you hold. Fixed-rate borrowers are insulated from rate changes until their term ends. Many Canadians locked in fixed five-year rates in the 1%–2% range during 2020 and 2021; when those terms end they will have to renew at current fixed rates, which are considerably higher than they were a few years ago.

Borrowers with variable-rate mortgages have already felt the impact of rate increases because their rate adjusts with changes to the Bank of Canada’s policy rate and lenders’ prime rates. Many variable-rate borrowers saw monthly payments rise as rates climbed.

Importantly, a large share of variable-rate borrowers have fixed payment plans. When interest rates rise, a larger share of each payment goes to interest and less to principal. If rates rise enough, a borrower can hit a “trigger rate” where the scheduled payment no longer covers the interest portion of the loan. By mid-2023, a substantial portion of households with variable-rate mortgages and fixed payments had reached that trigger point. When that happens, lenders typically require higher payments to cover interest, or they may allow the mortgage balance to grow through negative amortization. Negative amortization can increase the outstanding balance and may force borrowers to make larger payments at renewal or to refinance to regain control of the amortization schedule.

How to plan for higher mortgage payments

If you’re worried about rising payments, preparing early and reviewing every option will give you the best chance of a manageable outcome. Below are practical steps homeowners can take.

Cut back where you can

Small lifestyle changes add up. Financial planner Eric Warden of Warden Financial recommends evaluating discretionary spending—canceling underused subscriptions, postponing nonessential trips, and reducing vehicle turnover, for example. Trimming these costs can free up hundreds or even thousands of dollars per year to help meet higher mortgage obligations.

Consolidate other debt

Refinancing can be an opportunity to consolidate higher-interest debts, such as credit card balances or auto loans, into your mortgage. Consolidation typically increases the amortization period but lowers monthly payments. It’s important to weigh the longer-term interest cost against the immediate relief in monthly cash flow.

Talk to your mortgage lender

Open communication with your lender can be crucial. If you can demonstrate financial strain, many lenders will work with borrowers to arrange alternative payment plans or temporary solutions. Going silent can worsen the situation. This advice applies even to variable-rate borrowers who have reached a trigger rate: lenders often prefer negotiating manageable plans rather than forcing foreclosures.

Prolong the mortgage amortization period

Extending the amortization period is a common way to reduce monthly payments. Longer amortizations—25 years or more—spread principal repayment over a longer time, lowering monthly costs. The federal government has also adjusted insured mortgage rules for new homes, allowing amortizations up to 30 years in some cases. Extending amortization can provide immediate relief but increases the total interest paid over the life of the mortgage and may leave you with a mortgage into retirement, so consider this option carefully.

Play it safe

When renewal time arrives, some borrowers choose to stay with their existing lender. If you’ve kept up with payments, renewing with the same lender can be easier because you may not need to requalify under today’s stricter standards. Given current economic uncertainty, many experts recommend a conservative approach—considering a fixed-rate renewal to lock in predictable payments—although market changes can affect the relative attractiveness of fixed versus variable rates.

Consider prepayments

Where your mortgage allows prepayments, applying extra funds directly to the principal reduces the outstanding balance and shortens the amortization period. Many lenders permit annual prepayments up to a percentage of the principal without penalty. Using prepayment privileges consistently can dramatically reduce the loan term and overall interest paid.

Look for non-traditional sources of lump-sum funds as well—insurance settlements, tax refunds, or other windfalls—to accelerate mortgage repayment. In some cases, redirecting investment returns that are lower than your mortgage interest rate toward paying down the mortgage will improve your overall financial position.

Get creative with your mortgage

Compare the after-tax return on investments with the interest rate on your mortgage. If investment returns are below your mortgage rate, it may make sense to withdraw funds to reduce mortgage debt. Similarly, when refinancing, consider whether consolidating other debts or changing the amortization makes long-term sense for your financial goals rather than simply reducing monthly outlays.

Last resort: When should you sell your home?

Most of the time, a combination of the measures above—budget adjustments, lender negotiations, consolidation or amortization changes, and targeted prepayments—will produce a plan that keeps a home affordable. If you still cannot meet mortgage obligations, selling sooner rather than later preserves more control over the outcome. Selling before foreclosure becomes necessary allows you to avoid the higher costs and damaged credit that come with forced sales.