You may have heard about the mortgage renewal “cliff” over the last few years as the Bank of Canada (BOC) raised rates to combat inflation. What this meant was that there was and remains a large number of home owners that face a significant change when the existing term of their mortgage comes up for renewal.

Starting in March 2022, the Bank of Canada initiated a 25 basis point increase in its prime rate, rapidly raising it until it reached 5% in July of 2023. The shock was quick and immediate but the math is inescapable. Leading up to that period, a number of people locked in their rates below 2% over 5 year terms. The last of these rate shock mortgages are coming to maturity from 2027 – 2028.

There has fortunately been some relief in terms of the BOC most recently coming off its high from 2023 but this has not always translated into rate reductions on longer term mortgages. This is clear from the lower prime discounts on variable products (for example Prime – 0.5% to 0.6% vs Prime – 0.8%-0.9% or better) but this is starting to also shift with competition from the smaller lenders. What do you do if your property is part of this mortgage rate “cliff”?

Step 1 is to do some basic research and find out what you will need to deal with. The basic information you need is:

• When is your mortgage maturing? This is the starting point of your discussion;
• When can you pay it off or transfer it without penalty? This should be in the disclosure documents you received from your lender or the lawyer. If you cannot find it, phone your lender and get the information emailed or mailed to you;
• When is your current lender going to be in contact regarding a renewal? This isn’t as easy to discern but plan on starting the process no less than 6 months before the maturity date. This can be a long process so plan accordingly;
• Reach out to people you know or real estate professionals to get the names of brokers that they recommend. It isn’t always a question of rates – different terms do matter like payout options, penalties, etc. – and;
• Start getting your documents together. If you ultimately decide to change lenders this will be another application process. This isn’t a pleasant experience but changing institutions to save your hard earned dollars is often well worth it.

Step 2 is talk to your mortgage broker or reach out to find a mortgage broker to have those discussions with. Your current bank is certainly included in that list but be aware that your own bank may not have the ability to provide the best rate – especially where you allow them to be the only party negotiating with you. A mortgage broker will have access to additional rates that your own bank’s representative will not be able to provide. This is not to say to not use your own bank but instead, be aware of that issue.

Ultimately, this is your money and if you can offset some of the changes in rates by finding the best rate possible it really is an opportunity to minimize the pain of rate increases from historical lows.