Financial Spotlight: Homeowners Currently in a 5-Year Fixed Mortgage and Preparing for a Higher-Rate Renewal

5-year fixed mortgage lrg

5-year fixed mortgage smIf you are in a 5-year fixed mortgage, it’s possible that you are up for renewal this year or in the very near future.

Nearly 50% of Canadian homeowners will be renewing their mortgage between 2018 and 2020. If you are in this boat, there are several things you’ll want to consider.

  1. Mortgage Renewal Rates

Canadian interest rates are on the rise and mortgage rates are no exception. Even if you have been safe so far from the increases, thanks to your fixed mortgage, that may not be the case when it’s time for renewal.

The Big 6 banks have been increasing mortgage rates along with the interest rates. This could mean that when it’s time to renew, you will have to do so at a higher rate.

CIBC Economics estimates that 70% of households with five-year fixed-rate mortgages up for renewal will have renewed at a higher rate by the end of 2020.

  1. Mortgage Stress Test

As of January 1, 2018, all mortgages, even those with more than a 20% down payment, must be tested against a “stress test” — meaning that federally-regulated lenders must test borrowers’ applications against the Bank of Canada’s five-year benchmark rate or their contractual mortgage rate, plus two percentage points (for example, if your contractual rate is 3.5%, you would be tested at 5.5%) — whichever is higher.

Most mortgage renewals will not have to undergo the stress test if you stay with your current lender. If you decide to switch lenders, however, say, to get a lower rate, you may have to be stress tested.

Other lenders, like credit unions and private lenders, are not legally obligated to follow the stress test, so if this is a concern you may consider them for your mortgage renewal.

  1. Home Equity

If you have home equity, use it now. As interest rates (and mortgage rates) increase, the supply and demand of the housing market will be affected. Unfortunately, there is no crystal ball that can predict what your home will be worth at the end of your term or what the lending rate will be.

Rates have been on an upward trend, so acting now to use home equity to consolidate debt, finance renovations, purchase a vehicle, etc. could be a sure bet.

If you wait, you risk the chance of your home value decreasing and not being able to access as much equity.

For example, if your home is worth $250,000 now and you owe $150,000 on your mortgage, you would have $100,000 in home equity. But if the value of your home dropped to $200,000 due to supply and demand, you would only have $50,000 in home equity.

  1. Debt Consolidation

As mentioned above, if you are carrying debt and have home equity available this is the time to consolidate.

Carrying high amounts of debt can affect your mortgage renewal if you decide to switch lenders (during the mortgage stress test).

If you are carrying high-interest debt, you may be able to get a better interest rate through your mortgage than another loan, like a line of credit.

Consolidating debt using home equity can also have a positive effect emotionally — you will only have one monthly payment to repay, so it can decrease financial stress. There can be many psychological benefits to only having one debt.

Prudent Mortgage Corp. can help you create a personalized mortgage plan that includes mortgage renewal, home equity, debt consolidation, and much more. Contact us today for a free consultation. Call 1-888-852-7647 ext. 229 or visit us at

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