Mortgage Payment Shock at Renewal: How Much Your Payment Could Rise

Payment shock is the jump in your mortgage payment when a term ends and the loan renews at a higher rate. The payment you have now was set for the rate you signed at; at renewal the lender recalculates it on what you still owe, over the amortization you have left, at the new rate. Borrowers who signed when rates were low can see the payment rise by hundreds of dollars a month. This guide shows how to estimate the increase from the tables below; to enter your own balance, rate and amortization, use the mortgage renewal calculator.

What sets the new payment

Three numbers decide it:

• The balance at renewal. It is lower than the amount you first borrowed, because five years of payments (on a 5-year term) have paid some of it down.
• The amortization left. If you started at 25 years and have renewed once after five, 20 years remain unless you ask to change it.
• The new rate. The rate in your renewal offer, or a competing lender’s offer if you switch. Current averages are on the mortgage rates page.

The balance and the remaining amortization are on your annual statement; how to read a mortgage statement shows where to find each.

Monthly payment per $100,000 owed

Find your new rate and remaining amortization, then multiply the figure by your balance in hundreds of thousands. Payments are monthly, compounded semi-annually as Canadian fixed rates are quoted.

For example, a $400,000 balance at 4.50% with 20 years left is about four times the 20-year figure at 4.50%: $2,522 a month (the table is rounded to the dollar, so multiplying it can be a few dollars off). Comparing your current rate’s row with the new rate’s row (same amortization column) gives the increase on every $100,000 you owe. The table assumes a fixed payment; if you have a variable rate with a fixed payment that has reached its trigger rate, why your mortgage payment is going up and the trigger point options explain what happens at renewal.

A worked renewal example

Take a $500,000 mortgage signed at 2.00% over 25 years, renewing after five years at 4.50% with 20 years left .

The payment rises by $523 a month, about 25%, or $6,276 a year, even though five years of payments took the balance down. That is the shape of most payment shock: the lower balance offsets only part of the higher rate.

Ways to absorb a higher payment

Before the renewal date

• Rehearse the new payment. Setting aside the difference between the current and expected payment each month shows whether the budget can carry it, and builds a cushion if it can. The monthly cost of owning a home guide lists the other housing costs to count alongside it.
• Prepay within your privileges. A lump sum before renewal lowers the balance the new payment is based on. In the example, a $25,000 prepayment would take about $158 a month off the renewal payment. A prepayment made mid-term usually shortens the loan rather than cutting the payment, unless the lender agrees to a mortgage recast. How much you can prepay without a penalty is set by your prepayment privileges, and the mortgage calculator with extra payments shows the effect of any amount.
• Pay down other debt. Clearing a car loan or a line of credit frees cash flow that can go to the mortgage instead.
• Start comparing offers early. Many lenders let you lock a rate on a switch or an early renewal some months ahead; the mortgage renewal guide sets out the timeline, and the mortgage comparison guide lines up offers on rate, penalty and privileges.

At renewal

• Negotiate or switch lenders. A competing offer is the main lever with your current lender. Since November 21, 2024, a straight switch of an uninsured mortgage to a federally regulated lender, with the same balance and amortization, no longer has to pass the minimum qualifying rate; switching mortgage lenders covers the rules and costs.
• Extend the amortization. Stretching the example back to 25 years would make the renewal payment $2,318 instead of $2,640, at the cost of five more years of interest. Extending your amortization covers when lenders allow it and what it costs.
• Choose the term and rate type. A shorter term or a variable rate changes when the next reset comes and how the payment can move; fixed vs variable mortgages compares them.

If the new payment is out of reach

Talking to the lender before a payment is missed keeps the most options open. If you're at risk of mortgage default and working with your lender on a solution, a federally regulated lender such as a bank is expected to offer relief suited to your circumstances: for example a payment deferral (usually up to 4 months), waived prepayment penalties on a lump-sum payment that avoids negative amortization or when you sell your home, waived internal fees and no interest on interest for a limited period, or a longer amortization with a plan to restore it. Relief can raise what the mortgage costs in total. The mortgage payment deferral guide explains how a deferral works, and missing a mortgage payment covers what follows if one is missed.

What your lender has to tell you

If your mortgage is with a federally regulated lender, such as a bank, the lender must send you a renewal statement at least 21 days before your term ends, or tell you by then that it won't renew; the statement shows the balance, interest rate, payment frequency, term and any fees, and says the rate offered won't go up before the renewal date. That statement gives you the new payment to plan around. Lenders also look at whether the payment fits your income, using the GDS and TDS ratios, when you apply to a new lender or borrow more; those ratios are also a rough yardstick for how stretched a household is after renewal.

Related guides

The mortgage payments hub has the other guides on managing payments, including the average mortgage payment by province and city. For any other payment, the mortgage calculator works from a price or loan amount.