Each year, about 30 per cent of Canadian homeowners face renewal, according to the Canada Mortgage and Housing Corporation (CMHC). With interest rates still high and everyday costs continuing to rise, most are worried about being able to keep up with increased payments.
The stress of not knowing how you'll manage monthly expenses, or worrying about whether you’ll lose your home, is something many homeowners are dealing with. It's completely normal to feel overwhelmed and anxious in this situation. But the good news is there are steps you can take to prepare for your renewal, which can help you feel more secure about your finances.
In this article, we’ll provide a comprehensive guide to planning for mortgage renewal and an increase in mortgage payments. We’ll also offer practical advice for challenges you may face like renewing while unemployed, denied renewals, and rolling debt into mortgage renewals.
Renewing Your Mortgage in 2025
When your mortgage term ends and it’s time to renew, it’s important to evaluate whether your current mortgage still fits your financial needs and goals. “By taking proactive steps and working with a knowledgeable mortgage advisor or broker, Canadians can maximize their financial benefits during the mortgage renewal process,” says Darlene Vilas, a broker with The Mortgage Centre. “Whether it’s securing a better rate, consolidating debt, or exploring alternative options, renewal is a key opportunity to strengthen your financial position.”
At the end of January, the Bank of Canada lowered its key interest rate to 3 per cent, marking its sixth consecutive cut since June. Despite this, ongoing concerns about inflation means future rate cuts aren’t guaranteed. For those renewing in 2025, the current rates are still much higher than pre-pandemic levels and with ongoing cost of living increases, like groceries and gas going up, many homeowners are concerned they won’t make their payments and risk losing their home. However, by starting the mortgage renewal process early and understanding your options, you can take control of the situation. “Don’t wait until the last minute to renew your mortgage. The earlier you start the process, the more control you’ll have over finding the best rates and making smart choices for your financial future,” says Vilas.
How Does Mortgage Renewal Work?
About three to six months before your current mortgage contract ends, your lender will send you a renewal statement. You’ll typically have 21 days to respond, though you can accept the offer or decline at any time before your term expires. If you’re happy with the offer, you can simply accept the terms and move forward. If you’re not satisfied, you can shop around for better rates and even switch lenders. Some people use this opportunity to renegotiate their mortgage terms, switch from a variable to a fixed rate, or even consolidate debt. But keep in mind that switching lenders will require a full application process, including providing updated financial information.
If you don’t respond by the renewal date, your lender may automatically renew your mortgage for a short term, usually six months, giving you more time to decide. But remember to be proactive about the process, as waiting until the last minute could limit your ability to negotiate.
Do Banks Check Credit For Mortgage Renewals?
While it’s not always a guarantee, some banks may perform a soft credit check when you renew, especially if you’re asking for a new term, increasing your loan amount, or switching lenders. A soft credit check doesn’t impact your credit score, but if you’re applying for a new mortgage or additional funds, a hard credit check may be done, which can affect your score temporarily. If your credit is in good shape, it likely won’t affect your renewal. However, if your credit has taken a hit, it could impact the terms you’re offered.
How Does Mortgage Renewal Work for Reverse Mortgages?
Do you have a reverse mortgage? If so, you might be wondering how renewals differ from other mortgages. A reverse mortgage lets homeowners 55 and older tap into their home's equity without having to make monthly payments, often to boost retirement income. “Reverse mortgages allow seniors to safely age in place,” says Vilas. With a reverse mortgage, you borrow money based on the equity you have in your home, and you pay it back when you sell the house. It's called a reverse mortgage because, instead of building equity like a traditional mortgage, it’s actually reduced over time.
Since reverse mortgages don’t require regular monthly payments, there isn’t a typical renewal like with a traditional mortgage. Instead, when your reverse mortgage term ends, the lender will offer you new rates based on current market rates. If your home has appreciated in value, you might be able to access more funds.
Mortgage Renewal Requirements
When preparing for your mortgage renewal, there are a few key eligibility requirements lenders typically look for. Meeting these criteria can help ensure a smooth renewal process and possibly even help you secure a better rate:
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On-Time Payments: Lenders want to see you've consistently made your mortgage payments on time. Missed payments or late payments could lead to your renewal being denied.
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Credit Score: A strong credit score can help you get better terms, though some lenders may not check it for renewals. Work to maintain a score of 650 or higher to increase your chances of a good rate.
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Stable Income: If your income has changed, be prepared to show proof of your new earnings. Lenders may ask for pay stubs, tax returns, or other documentation.
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Debt-to-Income Ratio: Lenders will look at your overall debt compared to your income. Keeping this ratio low—ideally below 40 per cent—shows you’re managing your finances responsibly.
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Home Equity: The more equity you have in your home, the better. A higher equity percentage can work in your favour, as it reduces the lender’s risk.
If you're renewing soon and looking to secure better terms, you’ll want to improve your creditworthiness. Pay down any outstanding debt, particularly high-inter tv tv est credit cards, and try to avoid taking on any new debt. Aim to keep your credit card balances below 30 per cent of your limit to improve your credit utilization ratio and make sure all your bills are paid on time, as late payments can hurt your credit.
Prepare for Higher Mortgage Payments at Renewal
It’s important to prepare for higher mortgage payments at renewal, especially if you have a variable rate mortgage or a new fixed rate higher than your current one. By anticipating higher payments, you can make adjustments in advance—whether by saving extra funds, shopping for better rates, or looking at refinancing options.
“Many homeowners simply renew with their current lender without exploring better rates or terms. This can result in locking into a higher rate than necessary,” says Vilas. “To avoid this, compare rates and terms offered by other banks or consult a mortgage broker with access to multiple lenders, including those specializing in competitive renewal rates.”
If you decide to stay with your current lender, don't be afraid to negotiate for better terms or a lower rate. Another helpful strategy is to focus on paying down your mortgage principal before renewal, which will reduce the amount you owe and lower your future payments. Make sure to create a budget to track your expenses (if you don’t have one already) and identify areas where you can cut back. This will help you manage higher payments without compromising your daily expenses.
Renewing Your Mortgage When Unemployed
Unemployment can add complexity to the renewal process, but being upfront with your lender is key. If they request employment verification, always provide honest and accurate information about your situation. If you’ve lost your job, try to avoid requesting additional funds during the renewal, as this will trigger a full financial review, including income checks, which could lead to being denied. “Losing a job can make mortgage renewal stressful, but don’t panic. Talk to your lender early—they may offer options like deferrals or more flexible terms to help you through tough times,” says Vilas.
To improve your chances of a successful renewal during job loss, stay current with your payments. Lenders are more likely to approve a renewal if you’ve consistently made on time payments, even if your job situation has changed. If you’re having trouble renewing while unemployed, consider talking to a financial advisor or mortgage broker for alternative solutions or flexible lender options.
Rolling Debt into Your Mortgage Renewal
When it comes to consolidating debt into a mortgage, this often means rolling your current mortgage agreement and any high-interest debts (such as credit card debt, payday loans, and other non-mortgage balances) into a new mortgage set at a new interest rate. Once you’ve done this, your mortgage debt will increase by the amount of non-mortgage debt you rolled into it, plus the cost of breaking the old mortgage (if applicable).
Consolidating debt into your mortgage during renewal can have both immediate and long-term financial benefits, including:
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Lower Interest Rates: Mortgage rates are significantly lower than those on credit cards or personal loans. This can save you money in the long run by reducing the amount you pay in interest each month.
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Improved Cash Flow: Consolidating your debt into your mortgage can boost your cash flow by reducing your monthly payments. This means you'll have more income each month to cover essential expenses or save for the future.
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Extended Repayment Period: While your total repayment period may increase, disciplined financial planning can help you leverage the improved cash flow to achieve financial goals, such as accelerating mortgage payments or building an emergency fund.
“Renewal is an ideal time to assess existing debts. By consolidating high-interest debt, such as credit card balances, into your mortgage, you can reduce your interest costs and streamline your payments,” says Vilas. However, there are some downsides to consider, such as:
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Depleting Home Equity: Your home’s equity is not an unlimited resource—if you use it up, you may not have any left when you really need it, such as during a job loss or medical emergency.
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Racking Up More Debt: Many people continue to use their credit cards after consolidating their balances into their mortgage. So now, not only are they paying more on their mortgage, but they’ll also be back in the hole with credit card companies.
At Credit Canada, our Credit Counsellors can provide personalized, expert advice tailored to your situation and can help you navigate the complexities of debt consolidation. Contact us today!
What Happens if Your Mortgage Renewal is Denied?
Having your mortgage renewal denied may seem like a major setback, but it doesn’t mean you're out of options. Common reasons for denial include issues like a drop in your credit score, a decrease in income, or a decline in your property’s value. In these cases, there are still steps you can take to move forward.
One option is to work with a mortgage broker who can connect you with “B lenders.” These are alternative lenders that specialize in assisting borrowers with unique situations which traditional banks might not approve. Another approach you can take is debt restructuring, which is when a broker helps restructure your debt to improve your financial standing and increase your chance of approval with another lender.
“If your mortgage renewal is denied, don’t take it personally. It’s usually due to changes in your income or debt. You can always try negotiating with your lender or shop around for a better deal,” says Vilas. You can also explore non-traditional lending channels that operate outside of big banks, offering more flexible solutions tailored to your specific needs. If you need more support, seek out financial counselling. Our Credit Counsellors can help you evaluate your finances, strengthen your credit score, and develop a realistic repayment plan.
