How Much You Will Pay Upon Mortgage Renewal?

Over the past year and a half, the Bank of Canada (BoC) has been slowly and steadily raising interest rates to tame inflation back to a reasonable 1-3% per year. During COVID the BoC reduced the overnight lending rate to 0.25% to help the economy through unexpected times. Since then, inflation reached the highest levels since the 1980s and topped at 8.1% in June 2022. To reduce inflationary pressures the BoC increased the overnight lending rate to 5% over a 17 month span. This leads prime rate of Canadian Institutions to adjust accordingly. And here we are… the current primes rate as of August 27, 2023 is 7.2%.

Now, why should most home owners care about the BoC and interest rates? This rate will directly impact home owners that have a mortgage outstanding on their home. The most common questions we received over the past year are from people with fixed mortgages that are coming to term. They are wondering the following 3 questions:

1)      What will my mortgage payment be upon renewal?

2)      What can I do to reduce the impact on new mortgage payment/interest rate?

3)      Should I go fixed or variable and for how long?

 This article will cover question #1 and next week we will tackle questions #2 and #3. For simplicities sake we created a summary table illustrating mortgage payments monthly based on 4 potential renewal rates:

If you’d like to calculate your new mortgage payment tailored to your situation, Click Here.

To summarize, your new mortgage payment will depend on the outstanding mortgage amount, the interest rate upon renewal and amortization period. The table is meant to help with planning for renewal mortgages. With some assumptions and proactive planning, there are steps you can take to reduce the impact of an increased mortgage rate in the future. The next article will go into strategies you can take today to reduce the impact upon renewal and if a fixed or variable mortgage is right for you based on the current climate.