Mortgage Payments Are Easing Yet Renewal Stress Is Real

It feels like a collective exhale. After two grueling years of rapid interest‑rate hikes, the Bank of Canada has paused and even trimmed its policy rate, and many homeowners are finally seeing monthly mortgage payments drift lower. At first glance this sounds like unqualified good news. In reality, the picture is more complicated. Roughly six in ten Canadian mortgages will renew in 2025 or 2026, and for many borrowers, the new payment will still be higher than what they locked in during pandemic lows. In this explainer we unpack why payments are easing overall, what renewal stress looks like on the ground, and how to structure a game plan before your own mortgage comes due.

Did You Know?

• The average variable‑rate borrower with adjustable payments has seen monthly costs fall by roughly five to seven percent since the start of 2025.
• About two million mortgages, representing sixty percent of outstanding loan balances, will renew in the next eighteen months.
• Nationally, total mortgage payments declined by one point seven percent in the final two quarters of last year, the first back‑to‑back drop since 2020.
• The household debt‑service ratio steadied at fourteen point four percent in Q1 2025, down from the record fifteen point one percent seen in late 2023.
• Five‑year fixed terms signed in 2020 at around two percent are rolling over into rates in the four percent range, doubling the interest portion even after recent cuts.

Why Some Payments Are Finally Coming Down

Mortgage payments respond to two mechanical levers: interest rates and amortization schedules. The Bank of Canada began modest rate cuts in early 2025, and lenders quickly passed those savings to variable‑rate clients whose contracts adjust in real time. Fixed‑rate shoppers also benefit because bond yields have retreated on softer inflation. Meanwhile, homeowners who hit their trigger rate in 2023 were already making lump‑sum prepayments or stretching amortizations, so even small rate relief translates into meaningful monthly savings.

At the macro level, Statistics Canada reported that mortgage interest payments declined by zero point three percent in Q1 2025, the third decrease in four quarters. Combine this with steady income growth and the result is a debt‑service ratio that has eased off its peak. That said, the improvement is uneven. Borrowers on adjustable variable contracts are cheering, while those locked into fixed terms from the low‑rate era are bracing for impact.

The Renewal Crunch: Why 2025‑2026 Will Test Budgets

Renewal stress is not a catchy headline, it is a math problem. Imagine a homeowner who borrowed five hundred thousand dollars at one point eight percent in 2020. Their monthly payment was roughly two thousand one hundred dollars. If that mortgage renews at four point four percent, the new payment jumps to about two thousand seven hundred, an increase of roughly six hundred dollars a month. For households without spare cash flow, that delta can crowd out everything from grocery budgets to retirement contributions.

Regulators are watching closely. The latest Bank of Canada Financial Stability Report notes that sixty percent of mortgages renewing by late 2026 will face higher payments even under a soft‑landing rate scenario. Stress‑testing rules require lenders to qualify borrowers at the greater of two percent above contract or five point two five percent, but renewal affordability still depends on income growth, inflation, and employment stability.

Five Ways to Cushion Your Renewal

1. Start the conversation early. Six to eight months before maturity gives you time to compare options and lock a rate as protection.
2. Boost your prepayment. Even an extra hundred dollars a month today reduces the principal you carry into a higher‑rate environment.
3. Consider extending amortization cautiously. A longer schedule lowers the payment, then you can accelerate once rates normalize.
4. Consolidate high‑interest debt. Rolling credit‑card balances into a refinanced mortgage can free cash flow for the renewal bump.
5. Explore a blended rate. Some lenders allow you to combine your existing rate with current market rates, creating a mid‑point that softens sticker shock.

Top 10 Frequently Asked Questions

1. Why are national mortgage payments dropping if rates only dipped slightly?
Aggregate numbers blend variable loans, new originations, and fixed terms that have not yet renewed. The mix, plus income growth, is dragging the average lower.

2. Will everyone renewing in 2025 see a payment hike?
No. Borrowers who chose variable loans in 2023 at peak rates may see lower payments. Fixed‑rate borrowers from 2020‑2021 will likely pay more.

3. How big could my payment increase be?
Households rolling from two percent to four and a half percent could see monthly costs rise twenty to twenty five percent, depending on amortization.

4. Does my stress‑test rate guarantee I can afford the renewal?
It helps, but the test assumes stable income and no additional debt. Life changes can erode that buffer, so revisit your budget early.

5. Can I switch lenders at renewal with no penalty?
Yes, penalties disappear at maturity, though you may still pay appraisal and legal fees, which many lenders will cover to earn your business.

6. What if rates fall further before my renewal date?
You can often sign a rate‑hold with a broker or lender that lets you float down if market rates drop before closing.

7. Is it worth breaking early to lock a lower five‑year fixed now?
Run the math on penalties versus savings. In many cases, waiting until ninety days out avoids unnecessary costs.

8. How does an extended amortization affect long‑term interest?
It lowers payments today but adds interest over the life of the loan. Treat it as a temporary tool, not a permanent solution.

9. Should I choose variable or fixed this cycle?
Variable loans offer savings if rates keep drifting lower, but fixed provides certainty. A hybrid mortgage can split the difference.

10. Could widespread renewal stress trigger a housing downturn?
Analysts see limited systemic risk because job markets remain healthy, but localized price softness is possible if distressed sales rise in certain regions.

Key Canadian Mortgage Stats, Mid‑2025

• Bank of Canada policy rate: two point seventy five percent, unchanged since early June.
• Prime lending rate: four point ninety five percent at most major banks.
• Variable‑rate mortgages with adjustable payments: five to seven percent average payment drop year‑to‑date.
• Household debt‑service ratio: fourteen point four percent, down from the fifteen point one percent peak in Q4 2023.
• Mortgages up for renewal by end‑2026: approximately sixty percent of outstanding balances, or two million loans.
• Five‑year fixed rate today: around four point four percent for well‑qualified borrowers, versus pandemic lows near two percent.
• Mortgage delinquency rate: steady at zero point sixteen percent nationally, historically low but edging higher in oil‑producing provinces.
• Average mortgage size on new originations: four hundred fifty eight thousand dollars, up three percent from a year ago.

Your Next Steps

A gentle dip in payments should not lull anyone into complacency. If your renewal lands in the next two years, start planning today. Update your budget, gather documents, and speak with a mortgage professional who can model scenarios. Even a single proactive move such as a prepayment or a blended extension can soften the landing. Mortgage markets move quickly, but preparation lets you move faster.

Have more questions? Reach out and our team will walk you through a free renewal readiness checkup, complete with rate forecasts, amortization options, and cash‑flow strategies suited to your goals.