Why will my mortgage payment jump at renewal?

In Canada, your payment can jump at renewal because the interest rate resets to whatever rate you agree to for the new term. The payment is recalculated on your remaining balance over the time left to pay it off. If rates are higher than when you signed, the same balance costs more each month, sometimes by hundreds of dollars.

What changes at renewal

Your term is the length of your contract, often five years. Your amortization is the total time to pay the loan off, often 25 years at the start. At renewal, the term ends, but the amortization keeps running, so a 25-year mortgage has about 20 years left after a five-year term.

The new payment depends on three things: the balance you still owe, the new rate, and the years left. Only the rate is new. If the new rate is higher than the one you had, the payment rises even though you owe less than you did.

A worked example of a payment jump

These figures use illustrative rates only, not quotes; payments are rounded and assume a fixed rate compounded semi-annually.

You borrowed $500,000 over 25 years at an illustrative 2% for five years. Your payment was about $2,117 a month. After five years you owe about $418,851, with 20 years left.

• Renewing at an illustrative 4.5%, the payment becomes about $2,640, roughly $523 a month more.
• Renewing at an illustrative 5%, the payment becomes about $2,752, roughly $635 a month more.

You still owe less than you started with, but each dollar now costs more to carry.

Ways to soften the payment jump

Choose the term deliberately. A shorter term gives you an earlier chance to renew if you expect rates to change; a longer term gives longer certainty. Fixed and variable have different trade-offs too.

Extend the amortization, knowing the cost. In the example, stretching the remaining $418,851 back to 25 years at the illustrative 4.5% brings the payment down to about $2,318. The trade-off: if the rate stayed the same throughout, you would pay about $61,758 more in interest over the life of the mortgage.

You would also be paying for five more years. If you switch lenders and lengthen the amortization, the move is no longer a straight switch, so the stress test applies again. Your own lender may also ask you to re-qualify.

Prepay before renewal. Lump sums within your prepayment privileges lower the balance the new rate applies to. Check the limits in your contract.

Compare other lenders. At the end of your term you can switch without a prepayment penalty. Since November 21, 2024, an uninsured mortgage moving to another federally regulated lender without a larger amount or a longer amortization does not need to pass the stress test (OSFI, checked October 2026).

Budget early. Many borrowers estimate the likely new payment a year ahead and set aside the difference, so the change does not arrive all at once.

What to do next

To estimate your own payment jump, try the payment shock tool; results are estimates only, not an offer or advice. Or use our call-me-back form and we will compare your renewal offer with other lenders.