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Millions of Canadian homeowners are facing mortgage renewals in the coming years, with many feeling stressed as they prepare for higher payments amid persistently elevated interest rates.

An estimated 2.2 million mortgages have either come up for renewal in 2024 or are set to renew in the coming year, according to data from the Canada Mortgage and Housing Corporation (CMHC). This represents more than 45% of all outstanding mortgages in Canada.

While those with variable-rate mortgages have already felt the sting of rising interest rates, a new wave of fixed-rate mortgage holders is about to be hit as their rock-bottom interest rates come up for renewal. This looming financial adjustment is causing significant anxiety among many homeowners as they confront the prospect of much higher monthly payments.

Of mortgage holders facing renewal in the coming 12 months, 76% say they are anxious about the process, marking a 10 percentage point increase from last year, according to recent data from Mortgage Professionals Canada.

“Fixed-rate holders who locked in at historically low rates are now facing the reality of much higher interest rates,” said Katy Mackenzie, a mortgage professional at TMG The Mortgage Group. “Unfortunately, I don’t think anyone will come out of this unscathed.”

For those feeling overwhelmed by the prospect of higher mortgage payments, it’s important to remember that there are steps you can take to manage the financial strain. Here are a few tips that might make this tough transition a bit easier.

Start planning early

The key to coping with higher mortgage payments is anticipating the increase and planning accordingly, says David van Noppen, mortgage agent and owner of More Than Enough Financial.

“The real key is starting early,” he tells CMT. “Starting early in that renewal process gives you options. The longer you wait, the fewer options you have.”

Van Noppen suggests that, in some cases, it can be helpful to start increasing your mortgage payments a few months before renewal. This approach allows you to gradually adjust to the higher payments, making the transition smoother when the renewal kicks in and those increases become a reality.

Mackenzie adds that if you run the numbers and see that making the higher payments will be a struggle, it’s wise to reach out to your lender as soon as possible. By starting the conversation early, you can negotiate an arrangement that works for both you and the lender, potentially easing the financial burden.

“Start now with the conversations; pretend you’re renewing today,” she said. “Starting early allows us to look at all of that and plan for it so that it doesn’t feel like you’re under the gun. And communicate with the lenders as well.”

Reach out to your lender

This brings us to the next tip—if you’re finding it difficult to manage your mortgage payments or foresee challenges ahead, it’s crucial to contact your lender promptly.

“As to what the boundaries are and what they’ll allow is client specific, but if you avoid talking to them and just don’t make payments, they will not be lenient,” Mackenzie warns.

Both Mackenzie and Van Noppen stress that if you anticipate difficulty making a payment, it’s crucial to contact your lender in advance. Lenders tend to be far more understanding when you’re proactive about discussing your situation. While each lender’s approach may vary, there are several relief options that could be explored, including payment deferral, loan restructuring or re-amortization.

Enlist the help of a mortgage broker

With the cost of servicing a mortgage much more expensive due to today’s higher interest rates, Van Noppen has observed that many homeowners are now more inclined to shop around to secure the best deal.

“A lot of the clients haven’t renewed, so as they come up for renewal, the biggest thing that we’ve seen is more clients are calling or taking the initiative and saying, ‘I’m going to shop,’” van Noppen said.

He notes that while some people attempt to find mortgage deals on their own, the knowledge and expertise of a mortgage broker can be invaluable in navigating the complexities of the industry.

Over a third of Canadians currently use the services of a mortgage broker for their mortgage needs, according to that same MPC survey. That percentage rises to 46% for first-time buyers and 45% of those who purchased within the last two years.

“You need a professional to guide you through that process and to ask the right questions so that you get a quote or the right quote for your mortgage,” van Noppen said. “That just saves a whole lot of shopping around because not every mortgage is the same. You can’t just go online and Google what’s the best mortgage rate and assume you will get it.”

Explore mortgage relief options

Mortgage defaults occur when you fail to meet the terms of your mortgage agreement, such as missing a payment. If you find yourself at risk of this, it’s important to know that there are several mortgage relief measures available through your bank or outlined in your mortgage agreement that can help you manage your payments.

Under the Canadian Mortgage Charter, which emphasizes the rights and protections of homeowners, you may have access to one or a combination of the following options:

• Prepaying and re-borrowing: If you’ve made extra mortgage payments during your term, you may be able to borrow back the amount you prepaid. This borrowed money is typically added to your principal, which will increase your interest costs over time.
• Skip a payment: Many financial institutions offer a “skip a payment” option, allowing you to miss a certain number of payments within a calendar year. In some cases, this is only possible if you’ve made a prepayment to cover the skipped payment, but some institutions may allow deferral without a prepayment.
• Credit insurance claim: If you lose your job, become critically ill or are disabled, you may qualify for a credit insurance claim. In such cases, your insurance may cover some or all of your mortgage payments, providing temporary relief during difficult times.
• Mortgage payment deferral: Payment deferral allows you to pause your mortgage payments, usually for up to four months. This option was widely used during the pandemic, providing much-needed relief to many homeowners facing financial difficulties. However, it’s important to note that after the deferral period ends, you’ll need to repay the deferred instalments, which could increase your financial burden down the line.

Adjust your budget

If you need extra cash to cover your higher mortgage payments, your first line of defence should be conducting a cash flow analysis. This will help you identify where you can trim unnecessary expenses, freeing up funds to put toward your mortgage.

“We know that the cost of living has certainly outpaced the increase in incomes over the past number of years,” van Noppen said. “But the reality is, we also live quite comfortably.”

Van Noppen suggests cutting out some simple luxuries like extra subscriptions, technology or eating out less often to free up some extra cash.

However, after cutting out some of these unnecessary expenses, you need to determine if you’re making enough money to keep up with your bills. And if you’re not, either figure out how to generate more income or make some lifestyle changes.

“If you don’t make enough money, then there’s got to be a change,” van Noppen said. “The sooner you figure out what that change is, the sooner you’ll be able to get those balanced out again.”

For example, this might mean taking on an additional job or renting out a portion of your home to generate extra income.

Consider selling or downsizing

After you’ve done your cash flow analysis and cut out as many extra expenses as you can, if you still can’t come up with the money to make your mortgage payments, it may be time to consider selling your home to purchase something else within your budget.

“You’re going to get to the bottom and then you’re not going to be able to reduce that,” van Noppen said. “At that point, you have to decide, ‘do we make a significant change?’”

He said such change could mean selling your current home, downsizing to a smaller property, or even relocating to a more affordable city or area.

Use your home equity

If you’re struggling to make ends meet and have paid off part or all of your mortgage, tapping into your home equity could provide the cash you need. There are two primary ways to access your home equity:

• Cash-out refinancing: This option allows you to convert some of your home equity into cash by replacing your current mortgage with a new larger loan. The difference between the two loans is paid to you in cash. However, it’s important to consider that this could lead to higher interest costs over time.

Van Noppen suggests that refinancing to access home equity can be a viable option for those experiencing financial stress. While there is a cost to this, it may be the best option for some people if they’ve considered the consequences and decided it will relieve a significant amount of financial stress.

• Home equity line of credit (HELOC): A HELOC is a type of revolving credit that uses your home as collateral. It allows you to borrow money, repay it and borrow again up to your credit limit. This flexibility can be helpful if you’re short on cash.

However, Van Noppen expresses caution when it comes to HELOCs.

“My experience has been they’re part of getting the Canadian family in trouble because when you don’t have the money, you put [expenses] on the line of credit with no plan to pay it off,” he said.

Seek financial counselling

When dealing with higher mortgage rates, economic uncertainty and general financial stress, seeking financial counselling can be a valuable step. A financial counsellor can help you manage your money more effectively and create a plan to keep your finances on track.

Moreover, Van Noppen emphasizes that having someone to keep you accountable can significantly enhance your financial awareness. This sense of awareness can empower you to take control of your finances and make informed decisions.

“Don’t just ignore it,” he advised. “The problem is not going to go away on its own—it’s going to get worse.”

Source: Canadian Mortgage Trends