Canadian mortgage renewals: Planning for higher rates and managing unsecured debt

Strategies for navigating mortgage renewals and financial challenges

As mortgage renewal dates approach for many Canadians, a lot of us are facing, and fearing, increased interest rates. Historically, renewing a mortgage has been a routine task. But lately, rising interest rates and higher mortgage payments are adding tension to already overstretched household budgets, making upcoming renewals anything but ordinary.

For those already grappling with unsecured debts, it’s essential, now more than ever, to approach your mortgage renewal with a clear, strategic plan so you can achieve the outcome that works best for you.

Understanding mortgage renewals and rate increases

Mortgage renewals typically occur every one to five years, depending on the mortgage term agreement you signed. Having more frequent mortgage renewal terms allows customers the opportunity to revisit their mortgage terms and negotiate new interest rates more often.

In a low-interest rate environment, mortgage renewals should bring little change. With the current economic landscape as it is, this isn’t the case. The interest rates currently being offered by financial institutions are noticeably higher than the historical low interest rates enjoyed during and immediately following the COVID-19 pandemic. This shift has resulting in increased mortgage payments for many (if not all) Canadian homeowners.

If you are approaching mortgage renewal time, it would be prudent to estimate how much more you might need to budget for what your new mortgage payment might be – and explore all your options to ensure you’re getting the best rate possible.

Planning for increased mortgage payments

Preparation is crucial ahead of renewing your mortgage. Start by reviewing your monthly household budget and identify areas where you can reduce or reallocate expenses. With that in mind, explore the following:

• Determine what your new payment will be: Use online mortgage calculators to project your new payment based on current published and future forecasted interest rates.
• Contact your lender: Talk to your financial institution about available interest rates and options. You might be able to negotiate terms or extend your amortization period to maintain your current mortgage payment or even lower the payment. Keep in mind that this option would result in your paying more interest over the lifetime of your mortgage. You could revisit this at future renewal times and readjust if interest rates decrease.
• Shop and compare: You are not required to stay with the same financial institution that currently holds your mortgage. Mortgage renewals are in an application, so you are not necessarily committed to your current lender. You could look at other financial institutions, some of which may offer more competitive rates or incentives for switching your mortgage.
• Get professional advice: Mortgage brokers and financial advisors are equipped to help you assess your borrowing options and secure the best interest rates and terms for your unique financial situation.

The Financial Consumer Agency of Canada (FCAC) provides various resources and a mortgage calculator to help you plan for your mortgage renewal and estimate your future mortgage payments. The FCAC also provides other valuable information to help Canadian homeowners understand their rights and responsibilities as borrowers. These resources can assist you with making informed decisions before committing to a new mortgage rate or term – or before switching to a different financial institution.

Dealing with unsecured debts

For individuals struggling to pay unsecured debts, renewing your mortgage may be more worrying this year than in previous years. If you can only afford your mortgage payments right now and not your unsecured debts (such as credit cards, lines of credit, or personal loans), here are some options to consider:

• Talk to your creditors: Let your unsecured creditors know about your current financial situation. Some of your creditors may be willing to negotiate different payment terms or temporarily reduce or defer your payments.
• Debt consolidation: If you have some equity in your home, it may be a good option to refinance your mortgage and add your unsecured debts into your new mortgage. This strategy would reduce your monthly payments; however, the amount you owe on your mortgage will increase and be secured against your home.
• Consumer Proposal: A Consumer Proposal is a legal process that allows you to pay back a portion of what you owe to creditors (interest free) rather than the full amount (plus interest). A Consumer Proposal can only be filed with a Licensed Insolvency Trustee and protects your assets as well as stops collection action and harassing collection calls.
• Bankruptcy: Filing a Bankruptcy is another option to deal with your unsecured debts and keep your home. A Bankruptcy is a legal process where you are asking for total forgiveness of your debt in exchange for agreeing to do certain things as part of that debt forgiveness.
• Debt management plan: Get help from not-for-profit, accredited credit counsellors that can help you with negotiating a debt management plan with your unsecured creditors and that can also provide you with financial education, like the Credit Counselling Society.

Although you likely prioritize your mortgage payments to protect your home, not paying unsecured debts as agreed upon can lead to your creditors taking legal action or pursuing wage garnishes. It is imperative to consider all of your options and seek professional help if you are struggling to pay your mortgage and unsecured debts.

Useful resources and next steps

The FCAC offers reliable, impartial guidance on mortgages, debt management, and financial planning and literacy tools. Mortgage renewal guides and debt management tools can help you understand your financial situation and assist you in putting together a more informed plan.

Renewing your mortgage in a rising interest rate environment can be unnerving – especially if you are also juggling payments to unsecured debts. By taking early action, employing resources like those from the FCAC, and seeking professional advice where needed, you can develop a plan that protects your home and sets you on a path toward greater financial stability.

If you feel overwhelmed, consider reaching out to one of MNP’s experienced Licensed Insolvency Trustees (LIT). Our LITs will explore all your options with you and make sure you’re informed and making the right decisions for your future. Remember, you are not alone and an MNP LIT is available to guide you through these financial challenges.