Tax Tip Thursday

Be prepared for your upcoming mortgage renewal.

Let’s talk about that and some ideas about what you can do if you are faced with renewing a mortgage in the near future.

Anyone who bought a house or cottage in our crazy covid real estate market and/or anyone who took out a mortgage in 2021 and 2022 is going to be faced with a significant upswing in their rate and payment when they renew.  The balance of 2025, 2026 and 2027 could make for a very interesting real estate market when all those mortgages come due!

Many Canadian homeowners renewing their mortgages in 2025-2026 will face payment increases of due to sharply rising interest rates.

  • Nearly 60% of Ontario homeowners will renew their mortgages within the next three years, with 85% of 2025/2026 renewals tied to rates originally below 2%, leading to higher payment obligations.
  • Around 30% of homeowners are concerned about affording higher monthly payments post-renewal, as many face jumps from interest rates in the 2% range to rates above 4%.
  • Fixed-rate mortgages are the top choice for 75% of homeowners, with just over half preferring 5-year terms and 23% opting for 3-year terms.
  • Rising mortgage payments due to higher rates are straining household budgets, discouraging consumer spending, and posing broader financial risks, though recent rate cuts and lender solutions offer some relief.

Some people will see their payments almost double!  So please take action now, regardless of when your mortgage renews.

According to the Bank of Canada, many homeowners renewing in 2025 – 2026 will face payment increases ranging from 20 to 30 per cent. An unlucky 10 per cent of buyers could be facing payment increases of up to 40 per cent.

Talk to whoever you got your mortgage from.  Make an appointment now and be proactive.

Higher mortgages will affect all homeowners

This July, the CMHC reported that the average mortgage payment during the first quarter of 2025 was $2,086. For reference, homeowners with this current payment could face the following increases, depending on their mortgage renewals:

  • 15 per cent increase: $2,399
  • 20 per cent increase: $2,503
  • 30 per cent increase: $2,711
  • 40 per cent increase: $2,920
While rates have fallen some, they are still in the 4% or higher range!

So what can you do about it:

  1. First thing – do a budget and see what you can REALLY afford it.  I have done shows on budgets – the most important thing is to make it realistic!  Do not pretend you are going to suddenly change your spending habits significantly.  It takes a period of time to change those spending habits.  So if that is your plan, start now!
  2. If you do a budget – that is essentially an income statement for you personally.
  3. Prepare a balance sheet for your personal assets and liabilities.  Some people won’t know what that means.  Make a list of your assets and their values and a list of your debts.
  4. Make an appointment with your financial advisor or even the bank and take those documents with you and talk to them about what you can do when the mortgage comes due.
  5. Identify non-mortgage debt obligations that you can pay down in the short term to lighten the load on your other debt payments for when the mortgage comes due.
  6. Make sure your tax obligations are covered from a personal or small business perspective.  You do not want any surprise large tax balances that have to be addressed.  Make sure you are current.
  7. In severe situations identify assets that can be sold so the proceeds can be used to pay down your mortgage and reduce other debt payments possibly
  8. Consider selling your house if it is too expensive for you.  This is last resort for most people, but possibly the best solution.

The most important message I would like to convey is to not bury your head in the sand and hope for a miracle.  Things are NOT going to change dramatically in the couple of years in terms of interest rates, so you are much better off coming up with a plan now so that you are prepared.  Hope for the best, but plan for the worst.

You can plan ahead for your mortgage renewal by speaking with your bank and your accountant!  Make An Appointment today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.