Mortgage renewals are a familiar part of homeownership, but this time around, many homeowners in Ontario will find the process more complex than they remember. With interest rates significantly higher than in previous years, borrowers need to brace for changes that could affect their monthly payments and financial plans.
This article explores what renewing your mortgage looks like in the current economic environment, and how we at UCC Mortgage Co. can help you navigate these challenges with confidence and care.
Understanding Mortgage Renewals: What to Expect Now
A mortgage renewal happens when your mortgage term ends — whether it’s 1, 3, or 5 years — and you need to agree to new terms with your current lender or another one. Previously, low-interest rates allowed homeowners to renew their mortgages with minimal financial impact. However, with interest rates now between 4% and 6%, many borrowers will face higher monthly payments than expected.
Mortgage renewal can still be an opportunity to reassess your financial goals, consolidate debt, or explore better terms. At UCC Mortgage Co., we help our clients identify the most cost-effective solutions by offering expert advice and a full review of the market.
Impact of Higher Rates on Monthly Payments
One of the most noticeable impacts of rising rates is the effect on your monthly mortgage payment. Consider the following scenario:
- A $400,000 mortgage amortized over 25 years at 2.5% interest would have cost approximately $1,800 per month.
- If the interest rate at renewal rises to 5.5%, the monthly payment on the remaining balance jumps to $2,400 — an increase of $600 per month.
This increase can stretch household budgets, especially when paired with other rising costs, such as groceries and utilities. Managing these changes requires careful planning — and that’s where we come in.
How UCC Mortgage Co. Can Help You Navigate Rising Rates
When you receive a renewal offer from your current lender, it’s easy to accept it without exploring other options. However, in a higher-rate environment, shopping around can save you money. As Mortgage Brokers, our team at UCC Mortgage Co. works with multiple lenders, including major banks, credit unions, and private lenders, to ensure you get the most competitive rate and terms.
We assist you by:
- Comparing Lender Offers: We have access to multiple lenders and can negotiate on your behalf to secure the most favorable rates.
- Exploring Alternatives: If your renewal offer is higher than expected, we can find lenders offering better terms or additional incentives like cashback or rate discounts.
- Providing Personalized Strategies: Every borrower’s situation is unique, so we tailor solutions to fit your financial goals.
Avoiding the Mortgage Stress Test — When It Matters
A significant hurdle for borrowers looking to switch lenders is the mortgage stress test. If you switch lenders at renewal, you must qualify at a higher rate — either 2% above your contract rate or the Bank of Canada benchmark rate, whichever is higher. For example, if your new rate is 5.5%, you must qualify as if the rate were 7.5%.
However, if you stay with your current lender, you can often renew your mortgage without passing the stress test. This can limit your options, but with our expertise at UCC Mortgage Co., we’ll guide you through these requirements and identify solutions that work — even if switching lenders seems daunting.
Should You Choose a Fixed or Variable Rate?
Selecting the right mortgage product is more important than ever, given the higher rates. Borrowers must carefully weigh the pros and cons of fixed versus variable rates.
- Fixed Rates: Offer predictable payments for the entire term, providing stability and peace of mind. However, they are typically higher than variable rates at the time of renewal.
- Variable Rates: Start lower but can fluctuate with the prime rate. While they may save you money initially, variable rates carry the risk of increasing if the Bank of Canada raises rates further.
Given the current environment, our brokers at UCC Mortgage Co. often recommend considering shorter fixed terms — such as 1- or 2-year options. These allow homeowners to lock in some stability now while staying flexible in case rates decrease in the near future.
Managing Payment Increases: Options to Consider
We understand that higher payments can be overwhelming. At UCC Mortgage Co., we explore all available strategies to help ease the financial burden. Some of the solutions we may recommend include:
- Extending the Amortization Period: Extending the length of your mortgage from 20 to 25 years reduces your monthly payment, but it also increases the total interest paid over time.
- Making Lump-Sum Payments: If you have savings, making a lump-sum payment before renewal reduces your principal, which can lower your monthly payment and save you interest.
- Blended Rates: We can help you negotiate a blended rate with your lender, combining your old lower rate with the new higher one to soften the impact of the rate increase.
- Debt Consolidation: If you have other high-interest debt, such as credit cards or personal loans, consolidating it into your mortgage at renewal may improve cash flow.
Planning Your Renewal: Start Early and Stay Proactive
The key to a smooth mortgage renewal is early preparation. Ideally, homeowners should begin reviewing their options 3-6 months before their renewal date. Most lenders allow renewals within 120 days of maturity without penalties, giving you ample time to explore alternatives.
At UCC Mortgage Co., we’ll help you through each step of the process. Here’s how we assist:
- Early Pre-approvals: We can secure pre-approvals in advance, so you have a clear idea of what to expect at renewal.
- Market Comparisons: Using advanced platforms like Finmo, we quickly compare mortgage products across lenders.
- Flexible Negotiation: We negotiate with lenders to get the best deal—whether through lower rates, favorable terms, or incentives.
- Ongoing Support: Even after your renewal is complete, our team is available to answer any questions and make adjustments if needed.
What’s Next for Interest Rates?
While no one can predict the future of interest rates with certainty, many analysts believe that rates could remain elevated in the short term as the Bank of Canada fights inflation. However, if inflation stabilizes, we may see a gradual decline in rates over the next few years.
Given this uncertainty, many homeowners are opting for shorter-term fixed rates to remain flexible. Our Brokers stay on top of market trends to provide up-to-date advice tailored to your situation.
How UCC Mortgage Co. Makes a Difference
Renewing your mortgage in today’s environment can feel overwhelming, but you don’t have to navigate it alone. With over 50 years of experience, our team at UCC Mortgage Co. has successfully managed mortgage renewals for a variety of clients, even during challenging market conditions. We pride ourselves on offering:
- Expert Advice: Our brokers stay informed about the latest industry trends and products, giving you access to valuable insights.
- Tailored Solutions: We understand that every client’s financial situation is unique, and we customize solutions to meet your needs.
- Ongoing Support: Beyond your renewal, we are committed to helping you manage your mortgage for the long term, ensuring you stay on track toward your financial goals.
Renewing your mortgage today comes with new challenges, but it also presents opportunities to reassess your financial strategy. With interest rates higher than before, homeowners need to approach renewals with care and expertise. At UCC Mortgage Co., we’re committed to making this process as smooth as possible. From securing competitive rates to providing personalized advice, we’ll guide you every step of the way.
Whether you’re looking to switch lenders, manage increased payments, or explore debt consolidation, our experienced team is here to help. Contact us today to get started on your renewal journey — and rest assured, you’ll have the right mortgage solution to meet your needs, no matter what the market brings.
