Roughly half of mortgage holders have yet to face higher rates. How to start preparing now (and the one thing you should never do)

Allison Joseph, a supply teacher who renewed her mortgage at a variable rate of 1.72 per cent during the pandemic, is not looking forward to her next renewal in December 2025.
It’s going to be a “huge increase” says the Sparta, Ont., resident, who is also a former mortgage broker. It’s “very intimidating.”
Because her interest rate is so low, Joseph’s strategy is to park any extra money into two short-term GICs with five per cent interest rates, within her Tax-Free Savings Account, then use those investments to make a prepayment on her mortgage at the end of its current term.
According to the Bank of Canada’s latest financial stability report, approximately half of all outstanding mortgages are held by borrowers who have yet to face higher rates because their payments were fixed for five years, either with fixed or variable rates. “Households that hold these mortgages will generally see a larger payment increase than those that have already renewed,” the report says.
That’s because homeowners set to renew their mortgages in 2025-26 got fixed rates as low as 1.49 per cent and variable rates starting at 0.95 cent, says Ron Butler, mortgage broker at Toronto-based Butler Mortgage.
While rates are beginning to drop after spiking between March 2022 and July 2023, the pace of future rate cuts is projected to be more gradual, according to Deloitte Canada’s economic outlook report for summer 2024.
For homeowners expecting a mortgage renewal in late 2025 and 2026, it’s not too early to start preparing.
Jason Heath, managing director of Objective Financial Partners in Toronto, recommends homeowners start punching numbers into an online mortgage calculator to try to determine what kind of increased payment they could be facing.
“However much I’d like to hope that interest rates will come down over the course of the next two years, you never really know,” Heath says. “You need to anticipate what happens if interest rates are still in the five per cent range, for example. And what if interest rates are six per cent?”
If homeowners know what’s coming down the pipeline, they can start budgeting accordingly, he says, adding if they don’t have that extra money, now is the time to find an area of spending they can scale back on. Likewise, homeowners may need to re-evaluate whether they can actually buy a new car or other major purchase in a year or two.
Shannon Lee Simmons, financial planner at New School of Finance in Toronto, says that if your current mortgage payment is $1,500 and your projected payment is $1,800, start putting an extra $300 in your savings account now, if you can, to get used to the higher payment.
“This is an effective way of helping people reduce anxiety about their payment increase,” she says. “Sometimes we think it’s going to be bigger than it is.” It’s also an opportunity to save money and get the jump on your household finances.
Leah Zlatkin, licensed mortgage broker at Toronto-based Mortgage Outlet and LowestRates.ca expert, says adapting to a jump in housing costs may take some mental reframing. Previously, many personal finance experts recommended spending no more than a third of your income on housing, she says. “That’s not realistic at this point in time.”
Zlatkin also recommends prepaying a portion of your mortgage, but to always check beforehand if you’re allowed to prepay without facing a penalty. Often, people will use extra cash to buy holiday gifts or go on a vacation. If they make lump-sum payments on their mortgage instead, they’d lower their principal balance and decrease future payments, she says.
Now is also the time to be wary of early renewal offers from your bank, particularly if you have a good fixed rate, Butler says. While rates are going down, they’re not going to the 2.29 per cent rates some people currently have locked in. Butler warns that your bank may try selling you a higher rate, claiming that it will guard against a larger increase in the future.
“That’s actually a terrible strategy for the client because you have a great rate,” he says. “(An early renewal offer) is not a favourable offer in an environment where rates are going down. You should hold on to your rate until the last minute.”
When the time does finally come to renew, don’t accept the bank’s first offer without any sort of pushback or attempt to shop around, Butler says.
“There’s no lender that offers you the best possible deal the first time they send you out a renewal.”
Butler adds that now is also the time to get rid of as much consumer debt as possible, such as car loans and credit card balances, if you want to shop around to get the best rate possible when it’s time to renew. A new bank will require a whole new application, with a new stress test, he says, which will consider your monthly housing costs and total debt load. The idea is to make sure you don’t take on more debt than you can handle.
“If your income hasn’t taken a good increase, or you may have added a new car lease to your situation, you may not qualify for a new mortgage (with a new bank) even though you’ve been successfully paying this mortgage perfectly for five years.”