What to do if you can't pay your mortgage at renewal?

With interest rates higher than what many homeowners locked in back in 2020 or 2021, renewed monthly payments are coming as a shock. In fact, over 1.2 million mortgages are set to renew in 2025 — and many Canadians are worried about whether they can afford their new terms.

If you're concerned about managing your upcoming renewal, this guide covers what to do if you can't pay your mortgage, including strategies for missed mortgage payments, unaffordable terms, and rising costs.

Helpful resources for your mortgage renewal:

• Compare current mortgage renewal rates
• Use our mortgage renewal calculator to estimate your new payments
• Speak to mortgage broker for personalized renewal advice

What happens when you can't pay your mortgage?

In today's economic climate of rising interest rates and increasing living costs, meeting mortgage obligations has become a harsh reality for many. In Ontario alone, over 11,000 mortgages recorded a missed payment in the last three months of 2024 — nearly triple the number seen during the same period in 2022.

• Late fees and penalties: The most immediate consequence of a missed mortgage payment is a late fee from your lender. On top of that, the unpaid amount continues to accrue interest. These added costs can quickly snowball, increasing your overall debt and making it harder to catch up on future payments.
  
  
• Damage to credit score: Your lender reports each missed mortgage payment to credit bureaus, causing your credit score to decline. A lower credit score significantly hinders your ability to obtain credit in the future, whether it's for credit cards, personal loans, or even renting an apartment. Even if a lender approves your credit despite a lower score, they likely charge you higher interest rates due to the increased risk they perceive.
  
  
• Legal actions: Multiple missed payments can trigger the “acceleration clause” in your mortgage contract, allowing your lender to demand immediate payment of the remaining mortgage balance. If you can’t pay, they may begin legal proceedings, including wage garnishment, where a court orders your employer to withhold a portion of your paycheck to repay the debt.
  
  
• Foreclosure: If payments remain unpaid, the lender may begin foreclosure proceedings — the legal process of repossessing and selling your home. It usually starts with a Notice of Default and a short redemption period to pay the overdue amount. If the issue isn’t resolved, your lender may sell the home (often at public auction). If the sale doesn’t cover the full mortgage balance, you may still owe the difference.
  
  Also read: Can your mortgage lender force you to sell your home?

9 options for when you can't afford your mortgage renewal

85% of the mortgage renewals in 2025 were originally contracted when the Bank of Canada’s policy rate was at or below 1%. With the rate now standing at 2.75%, a vast majority of these homeowners will face significantly higher interest rates upon renewal. If your mortgage payment went up and you can't afford it, don’t panic, we’ve listed the top strategies to take control of your renewal process with confidence.

1. Negotiating with your lender

Lenders are often more accommodating than you might expect, especially if you approach the conversation proactively and transparently. You could negotiate for: 

• Making interest-only payments for a set period. 
• Lowering your interest rate based on market conditions.
• Adding missed payments to your balance and spreading them over the repayment period.

2. Considering a payment deferral

A payment deferral allows you to temporarily pause or skip your mortgage payments for a specific period, typically up to four months. 

While you won't need to make your usual mortgage payments during this period, it's important to note that interest continues to accrue on your outstanding balance. At the end of your deferral period, your lender will add the deferred interest to your principal, resulting in a higher overall balance. You might need to either increase your monthly payment amount or extend your amortization period to cover the increased balance.

The Financial Consumer Agency of Canada lists the following eligibility criteria for payment deferrals:

• You haven’t missed any payments before requesting a deferral.
• The property must be your principal residence, not a secondary or investment property.
• You’re experiencing financial difficulties due to extraordinary circumstances, such as job loss or medical emergencies.
• You’ll be at the risk of defaulting on the mortgage.

3. Extending your amortization period

If your monthly payments are becoming unmanageable, ask your lender whether you can extend your amortization period at renewal. Stretching your mortgage amortization over a longer timeline can significantly reduce your monthly payments, helping ease short-term financial pressure. But it comes at a cost:

• You’ll pay more interest overall
• You’ll build home equity more slowly — which can limit your future borrowing power

Let’s say you have a $300,000 mortgage at a 4% interest rate, and a 25-year amortization period that you have the option to extend to 30 years. Using our mortgage renewal calculator, here’s how the two options compare: 

By extending the amortization from 25 to 30 years, your monthly payment decreases by $151. However, the total interest paid over the life of the mortgage increases by $40,560.

4. Changing to a fixed-rate term

If you’re currently on a variable-rate mortgage and feeling uneasy about rate fluctuations, switching to a fixed-rate term at renewal can offer predictability and peace of mind. In fact, our internal data shows that 77% of mortgage inquiries in 2025 have been for fixed-rate terms, reflecting how many Canadians are prioritizing stability.

That said, there are trade-offs. Fixed-rate mortgages typically come with slightly higher initial interest rates than variable ones. And if market rates fall, you won’t see your payments go down because your rate is locked in for the term. Still, for many borrowers in 2025, the certainty of a fixed payment is worth the trade-off.

5. Switching to another lender

When your mortgage term ends, you have the freedom to shop the market and switch lenders without paying a penalty to break your mortgage. Compare quotes from multiple lenders to identify competitive interest rates and other benefits, such as flexible payment options or cash bonuses. Even a small reduction in your interest rate can lead to significant savings over the course of your mortgage. If you're making a “straight switch” – meaning your mortgage amount, amortization, and borrower details remain the same – you may not need to re-qualify under the mortgage stress test when switching between federally regulated lenders. 

If you don’t qualify with a traditional lender, you might consider alternative options like: 

• B lenders: These lenders are more flexible even if you have a bad credit score or irregular income source. They typically offer higher interest rates than A lenders 
• Private lenders: Private mortgage loans focus their approval on your property’s value rather than your financial profile. However, they often come with significantly higher interest rates and fees.

Note: Switching lenders may involve extra costs such as appraisal or legal fees, but some lenders will cover these as part of their offer.

6. Consolidating debts

Having multiple high-interest debts such as credit cards, personal loans, and lines of credit can eat into your budget, making it difficult to manage increased mortgage payments. By consolidating debts into a single loan, you replace multiple payments with one simplified payment, often at a much lower interest rate. 

Here are the various options to combine your debt:

• Home equity line of credit: A HELOC allows you to borrow against the equity you've built up in your home. It's a revolving line of credit that you can use to pay off other debts. 
• Debt consolidation loan: These unsecured loans combine your debts into one manageable monthly payment, often at a fixed interest rate. This option doesn't require using your home as collateral, reducing the risk to your property.
• Balance transfer credit card: If you have multiple high-interest credit debts, you can transfer all the balances to a card at a lower rate. These cards offer a low or zero percent introductory interest rate for balance transfers.
• Second mortgage: A second mortgage is a new, separate loan that you take out using the equity in your home as collateral. It does not replace your existing mortgage. Instead, it acts as an additional loan that you repay alongside your primary mortgage. 

7. Filing a consumer proposal

If unsecured debts like credit cards, personal loans, or tax bills are making it impossible to keep up with your mortgage, you can consider a consumer proposal. It’s a legal alternative to bankruptcy that is arranged through a Licensed Insolvency Trustee (LIT) in Canada. You can negotiate with your unsecured creditors to repay a portion of your debts over a period of up to five years. By reducing your overall debt load, you free up more income to cover your mortgage payments. To qualify, your unsecured debts (excluding your mortgage) must be less than $250,000, and you must be unable to pay your debts as they come due. 

Note: A consumer proposal lowers your credit rating and remains on your credit report for three years after completion.

8. Use skip-a-payment or interest-only features

Some lenders include a skip-a-payment feature, which lets you miss a payment once or twice a year without penalty. While helpful in a pinch, keep in mind that interest continues to accrue and the skipped payment is added to your mortgage balance, increasing your overall cost.

Your lender may also agree to interest-only payments for a limited time. This means you’ll temporarily stop paying down your principal and only cover the interest portion of your mortgage. Your monthly payment drops, but your mortgage balance won’t shrink during this period.

These features can offer breathing room during unexpected expenses or income disruptions, but they’re not long-term solutions.

9. Downsizing your home

If you've explored other strategies and still can't make your mortgage renewal work, downsizing may be the most realistic way to regain financial stability. Selling your current home and moving to a more affordable property can reduce your mortgage balance and lower your monthly payments.

This option is especially worth considering if:

• Your housing costs are consuming a large share of your income
• You're relying on credit or savings to make ends meet
• You've built significant equity in your current home

Downsizing doesn’t have to mean downgrading. In many cases, it can free up cash and help you transition into a more sustainable financial situation — especially if you’re approaching retirement or dealing with reduced income.

The bottom line

Facing a mortgage renewal you can't afford is undoubtedly stressful. But don't let the stress freeze you into inaction. With a proactive approach and a sprinkle of optimism, you'll find a path that keeps you on track toward your homeownership dreams. 

Also read:

• 7 tips for mortgage renewal time
• Renewing your mortgage in 2025? Here’s what to expect
• The state of mortgage renewals in Canada
• Can I get a 30-year mortgage in Canada?
• How early should I renew my mortgage?