Renewing your mortgage in 2024? Here’s what to expect

This article was originally written on January 9, 2024 and was updated on December 2, 2024. 

2024: A significant year for mortgage renewals

Mortgage renewals were certainly top of mind for borrowers and brokers alike in 2024, as many faced affordability challenges while taking out another term.

This is because mortgage rates are now considerably higher than when many borrowers first qualified for their homes. Both fixed and variable mortgage rates have increased drastically since the early months of 2022; in February of that year, the Bank of Canada's (BoC) benchmark overnight lending rate (which sets the price of variable mortgage rates) sat at a pandemic low of 0.25%. Not surprisingly, this created a surge of home buying activity, as buyers snapped properties up with rock-bottom financing.

The real estate rush was short-lived, however; as pandemic lockdowns lifted, inflation grew rapidly, and far beyond the BoC’s comfort range of 2%. The central bank had to take action to reel this growth in and did so with a series of 10 rate hikes, which eventually brought its target rate to a peak of 5% in July 2023. The BoC then left its rate untouched for a total of 11 months, as it waited for inflation to normalize. By June 2024, inflation had lowered enough to warrant several rate cuts from the central bank, in turn lowering Canada’s Prime rate and the cost of variable-rate mortgages. 

While these decreases have offered Canadian borrowers some much-needed rate relief, they’re still elevated compared to their pandemic-era lows – and most mortgage renewers are facing higher rates as a result.

Bond yields – which are used by banks to set the pricing for fixed mortgage rates – were also extremely volatile throughout 2024. This kept borrowers guessing, making it all the more challenging to time the market.

The government of Canada’s five-year bond yield (which is used to underpin the price of five-year fixed mortgage rates) hit a peak of 4.42% in October 2023, which was up dramatically from 1.46% in March 2022. This meant fixed mortgage rates also rose steeply in price, hitting the upper 5% range compared to the sub-2% offers borrowers could find the previous year.

If you were a borrower who originally took your mortgage out in 2020 at the 1.39% available at the time, today’s rates are around 250 - 400 basis points higher, even taking recent rate cuts into account.

The effects of the BoC’s hiking cycle have already been significant; according to Q3 debt repayment data released by Statistics Canada, mortgage interest payments had soared by nearly 90% since March 2022, while the amount borrowers are putting toward their principal loan has shrunk by 16.8%.

Have a look at the video below with some great tips on renewing your mortgage in 2024, then read on for more important information. 

Also read: The mortgage renewal process

How many mortgage borrowers renewed their mortgage in 2024?

A considerable chunk of Canadian borrowers were impacted. Recent data from Mortgage Professionals Canada (MPC) forecasted that 23% of all Canadians renewed their mortgage this year, which will increase to 50% within two years.

In terms of dollars, that represents about $251 billion of mortgages, followed by another $352 billion in 2025.

Additional data from the Bank of Canada finds “virtually all” remaining mortgages will go through their renewal cycle by 2026. Depending on the path for interest rates, these borrowers “may face significantly higher payments,” states the Bank.

“Since March 2022, interest rates have risen considerably and rapidly following a period of historical low rates during the first two years of the COVID‑19 pandemic,” reads the report. “As a result, many mortgage holders are currently facing significantly higher payments, and others will do so at renewal. The exact size of this increase in payments depends on the features of each mortgage and how interest rates continue to evolve.”

The MPC data, which is based on a survey of mortgage borrowers, expands on this, finding that of those who are renewing their mortgage in 2025, 71% are anxious about having to do so at a higher rate. As well, one in 10 Canadians had difficulty making their mortgage payments in 2024, up 33% from 2023.

Also read: The latest stats on mortgage renewals in Canada: CMHC

How much will mortgage payments increase?

The BoC crunched some numbers to see just how much more borrowers can expect to pay. Using a scenario that assumes interest rates will “evolve according to financial market expectations,” and that borrowers will renew into the same type of mortgage, the BoC projects all outstanding mortgages as a whole will see a median monthly payment increase of 34% by the end of 2027, from $1,200 in February 2022, to $1,600.

But the payment pain will vary depending on the type of mortgage borrowers have:

• Fixed-rate borrowers with a term of five years or more would see payments increase by 25%, from $1,152 to $1,444.
  
  
• Fixed-rate borrowers with terms of less than five years would see payments increase by 38%, to $1,532 from $1,109.
  
  
• Variable-rate mortgage borrowers with a variable payment schedule have already absorbed a 70% increase, notes the BoC, as their payments fluctuate directly alongside the benchmark rate. However, they can expect another 43% difference at renewal time, changing their payment from $1,902 to $1,327.
  
  
• However, it’s variable-rate borrowers on a fixed payment schedule (VFM) who are set to absorb the greatest increase – up 54%, blowing their monthly payment up to $2,190, from $1,418.

“For this group, median payments are expected to increase by 54% during the period between the end of February 2022, just before interest rates began to increase, and the end of 2027,” writes the Bank. “In contrast, those with variable payments have already been impacted, with median payments up 70% in November 2023 compared with their level at the end of February 2022.” 

“Triggered” borrowers set for larger renewal shocks

VFM borrowers were also subjected to one of the nastiest side effects of the rapid pace of the central bank’s rate hikes – hitting their trigger rate (the point the mortgage’s interest payment equals that of its principal payment.) 

While the immediate risk of borrowers hitting their trigger rate has now subsided post June rate cut, as many as 80% of VFM borrowers had hit theirs by November 2023, says the BoC,likely prompting many of these borrowers to take action such making a prepayment, or converting to a fixed-rate mortgage.

As well, according to the Bank, as many as a quarter of VFM borrowers have hit the more serious trigger point, meaning their mortgage payment must increase in order to cover their interest. While some lenders required borrowers to increase their payments immediately when hitting their trigger point, others offered solutions such as temporarily extending the mortgage’s amortization, or adding the interest onto the principal balance of the loan. This means the mortgage is growing in size over time, rather than being paid down (referred to as negative amortization).

“Many VFMs are currently in a situation of negative amortization; as a result, their loan balances are growing. Unlike a variable payment arrangement in which the payment always adjusts with the interest rate, these mortgages will face a larger increase in payments at renewal to get back to their original amortization schedule. Ultimately, they will end up costing more in interest over the life of the loan,” writes the Bank.

Also read: Just how risky are longer mortgage amortizations?

Rising incomes ease payment pain

The BoC also factors in that many borrowers will likely see their incomes increase over the next few years, which will take some of the financial pressure off renewing at a higher mortgage rate.

“The impact of higher interest rates on borrowers’ ability to pay their mortgage will largely depend on their future income,” the report states. “Without any income growth, the median borrower may need to dedicate up to 4% more of their pre-tax income to mortgage payments by the end of 2027. However, for some borrowers, income growth could mitigate the impact of higher interest rates on debt serviceability.”

The Bank also notes that its analysis doesn’t account for changes in borrowers’ behaviour that could also reduce the renewal impact, such as making accelerated payments, or switching to a lender offering a lower mortgage rate.

“Such changes would help lessen (although not avoid) the increase in payments. Thus, our simulation results represent an upper-bound estimate,” the Bank writes.

How to reduce the impact at mortgage renewal time

While a boost in income would certainly be a welcome solution for many Canadians, there are fortunately other ways to prepare for mortgage renewal time than simply making more money.

1: Get in touch with your mortgage broker – sooner rather than later

Don’t try to navigate your renewal alone – it’s always best to have a professional in your corner. Mortgage brokers have an intimate knowledge of the mortgage industry, with insights into the most competitive products and features available from a number of lenders – including alternative options if need be. 

Find a mortgage broker

2: Start the renewal process early

If you do think you’ll make a lender change at renewal time, don’t wait around for the notice that your term is up. Most lenders will allow the renewal process to start a full 120 days before your term expires – and in today’s economic climate, time is money. Kicking off your renewal rate search early gives you more time to shop for the best product, or to learn enough about your options to effectively negotiate with your existing lender.

3: Consider a refinance

If you’ve built up equity in your home, that could come in handy now to offset the impact of higher monthly mortgage payments, or restructure your total debt load to make it more manageable.

There are a number of ways to access increased cash flow, such as taking out a HELOC, which allows you to access up to 65% of the value of your home. You could also consider a “blend and extend” mortgage, which takes your existing, lower mortgage rate and combines it with new funds taken out at current market rates; while less competitive than the best rates available on the market, this could be an option for some borrowers who anticipate having to renew considerably higher.

4 - Keep your fixed-rate options open by going variable

Both fixed and variable mortgage rates are expected to drop within the coming months, but it’s unclear which rate type will decrease more; while BoC rate cuts are looking increasingly baked in over a set 24-month horizon, the fixed-rate mortgage market is much more fluid, and prices can turn on a dime. 

It’s a possibility that fixed mortgage rates could fall materially lower than variable rates over the next two years – but that doesn’t help borrowers who are set to lock into a new fixed term now.

One strategy for these borrowers is to take out a variable mortgage rate at renewal instead, which grants them greater flexibility to make a change should rates drop in the future. This is because breaking a variable mortgage mid-term comes with a much lower penalty – just three month’s worth of interest – than that of a fixed-rate mortgage. As well, most lenders will allow variable borrowers to convert to their posted fixed-rate option at any time without penalty. Be sure to discuss the pros and cons of this approach with your mortgage broker to determine whether it’s a good fit for your personal risk tolerance and budget.

Read: Think mortgage rates will drop? The argument for going variable now

5 - Take out a shorter-term fixed rate

For borrowers who prefer to lock in, but still want the flexibility to take advantage of potentially lower future rates, a two- or three-year term fixed-rate mortgage could be a solution. While the rates for these mortgages are always higher than their five-year counterparts, the higher payments could be offset at renewal time should rates be materially lower. In the meantime, borrowers can ride out any short-term volatility.

CMHC's 2024 Mortgage Consumer Survey finds there’s been a “notable shift” toward shorter renewal terms. While five-year terms continue to be the most popular at 43% of borrowers, that’s down from 53% last year. The share of borrowers choosing a three-year term is up to 24%, an increase from 18% in 2023.

6 - Lengthen your mortgage’s amortization at renewal

Extending your overall mortgage amortization period essentially spreads your payments out over a longer time period, lowering the amount you’ll pay on a monthly basis. This can be a way to mitigate the impact if renewing with a higher mortgage rate – but beware the increase in total interest paid over time. According to numbers crunched by Ratehub.ca, extending a $500,000 mortgage at a rate of 5.8% from 25 years to 30 years would reduce the monthly payment to $2,935 from $3,161 – a difference of $226. However, the interest paid would skyrocket by over $100,000 by the end of the mortgage.

The bottom line

The past several years have been very volatile in terms of the mortgage market and overall economy, and that’s put borrowers through the wringer.

While 2024 brought borrowers some relief in the form of lower interest rates, whether rates drop much further depends on a number of factors such as inflation, GDP and job growth, and outside factors such as the outcome of the US election and resulting trade effects. Whether or not the US Federal Reserve (the American counterpart to the Bank of Canada) will continue to cut its own trend-setting rate will also influence the BoC’s next steps.

Also read:

• • The mortgage renewal process
  • 5 tips for mortgage renewal time
  • The state of mortgage renewals in Canada: CMHC
  • Bank of Canada cuts target interest rate by 0.5% in October announcement