Within a single month, the central bank slashed its key interest rate from 1.75% to 0.25%. This was a historic low, aimed at stabilizing financial markets and easing borrowing costs for consumers.
Source: Bank of Canada, as of December 17, 2024. Target for the overnight rate.
For many Canadians, this created a unique opportunity to lock in record-low mortgage rates. Five-year fixed mortgages became the attractive choice for homeowners looking for stability in uncertain times.
However, the historically low rates of 2020 and 2021 are long gone, and today’s high-rate environment presents new challenges. Five years later, those same borrowers are facing a dramatically different reality as their mortgages come up for renewal.
The mortgage rate shock of 2025-2026
As these low-rate mortgages come up for renewal, homeowners will be met with significantly higher rates than they secured in 2020 and 2021. The Bank of Canada has steadily increased interest rates to combat inflation, leading to a much higher cost of borrowing. Today, five-year fixed rates are hovering around the 4-5% range, a stark contrast to the sub-2% rates many homeowners locked in at the height of the pandemic.
The numbers paint a daunting picture: approximately 60% of mortgages in Canada are set to renew over the next two years, according to the Bank of Canada. For many households, this will mean a substantial increase in monthly mortgage payments.
Five years ago, a homeowner who secured a 2% interest rate on a $600,000 mortgage would have had monthly payments of $2,543.* Over the course of their five-year term, they’d have paid $55,298 in interest.
Now, as they approach renewal, their remaining mortgage balance would be $502,710. If they locked in at a new rate of 4.75% over five years, their monthly payments would rise to $3,235; an increase of almost $700 per month. More strikingly, the total interest paid over the next five years would jump to $108,735, almost double what they paid in the previous term.
For households already feeling the squeeze from inflation, rising living costs and economic uncertainty, this looming mortgage renewal presents a serious financial challenge.
However, rather than simply accepting higher payments, now is the time to be proactive.
Why your mortgage needs to be part of your financial plan
Many Canadians treat their mortgage as a stand-alone financial obligation, something to renew every few years without much thought beyond the interest rate.
According to a study from the Fraser Institute, a family’s second-largest expense is housing — the bulk of which for many is their mortgage — while their highest expense is taxes. Every year, tax planning is a routine and carefully managed process, with people dedicating time and effort to optimize their tax returns.
Yet, despite mortgage payments being the largest strategic allocation of monthly cash flow, mortgage planning typically happens only once every five years. Given this longer time frame, it’s even more critical to approach it with the same level of diligence as tax planning. The financial impact of mortgage decisions extends far beyond the renewal date, making it essential to analyze and optimize this expense, just as we do with taxes.
With today’s economic landscape, it’s more critical than ever to integrate your mortgage into your overall financial plan. Here’s why:
1. Your mortgage impacts your entire financial picture
A higher mortgage payment affects everything from your ability to save for retirement to your monthly spending. If your monthly costs are set to rise, you need to reassess your budget and cash flow to ensure you can manage the increase without jeopardizing your long-term financial goals or your current lifestyle.
2. You need to align your debt strategy with your long-term goals
By reviewing all outstanding loans, including credit cards, lines of credit and other debts, you can explore strategies to optimize your cash flow, reduce interest costs and improve your overall financial stability.
3. Interest rates aren’t the only factor to consider
While getting a good rate is important, other factors can significantly impact your financial well-being. These include prepayment options, fixed versus variable interest rate considerations, the amortization period and the overall flexibility of your mortgage terms. The right mortgage structure can provide breathing room and reduce financial stress.
Get an IG mortgage strategy
The choices you make today will have lasting consequences. By incorporating your mortgage into an integrated financial plan and seeking professional advice, you can make informed decisions that will set you up for long-term financial success.
Your IG Advisor, working in partnership with a mortgage advisor, will provide you with a mortgage strategy that not only takes into account your whole financial picture, but which also complements your financial plan.
Read this IG mortgage strategy case study to find out how Max’s IG Advisor was able to offer her a mortgage strategy that improved her monthly cash flow by $1,281, compared to the mortgage renewal offer she received from her previous lender.
Contact your IG Advisor to begin the process of getting a mortgage strategy designed just for you. If you don’t have an IG Advisor, you can find one here.
Don’t wait until renewal time; start the conversation now and ensure that your mortgage strategy supports your broader financial goals.
* Mortgage payments are based on a 25-year amortization period five years ago and a 20-year amortization period on renewal. The amortization period is the amount of time it will take to pay off the mortgage completely.
Written and published by IG Wealth Management as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an IG Wealth Management Advisor.
Mortgages are offered by Investors Group Trust Co. Ltd., a federally regulated trust company, and brokered by nesto Inc. Licences: Mortgage Brokerage Ontario #13044, Saskatchewan #316917, New Brunswick #180045101, Nova Scotia #202507230; Mortgage Brokerage Firm Quebec #605058; British Columbia, Alberta, Manitoba, Newfoundland/Labrador, PEI, Yukon, Nunavut, Northwest Territories.
Mortgage advisors are licensed professionals and equivalent to the following titles per province: Sub Mortgage Broker/Mortgage Broker in British Columbia, Mortgage Associate/Mortgage Broker in Alberta, Associate/Mortgage Broker in Saskatchewan, Salesperson/Authorized Official in Manitoba, Mortgage Agent/Mortgage Broker in Ontario, Mortgage Broker in Quebec, Mortgage Associate/Mortgage Broker in New Brunswick, Associate Mortgage Broker/Mortgage Broker in Nova Scotia, or Mortgage Broker in Newfoundland & Labrador.
