Renewing Your Mortgage After Financial Changes

About half of all homeowners who took out a mortgage before interest rates began to rise in February 2022 have yet to go through a mortgage renewal, according to the Bank of Canada.

By the end of 2026, nearly everyone in that group — over 2 million homeowners — will renew, according to one estimate by the Canadian Mortgage and Housing Corporation.

In addition to facing higher rates, some borrowers will find themselves in a different financial situation than they were a few years ago.

Changes in household income, debt level or credit score can complicate renewal. Even if your situation results in fewer options than you’d like, proactively seeking expert guidance to prepare properly can get you closer to the best possible outcome.

Change #1: Your income changed

“The impact of higher interest rates on borrowers’ ability to pay their mortgage will largely depend on their future income,” according to a 2023 Bank of Canada report. “Without any income growth, the median borrower may need to dedicate up to 4% more of their pre-tax income to mortgage payments by the end of 2027.”

If your income has dropped, however, that burden is higher.

“My first reaction for people is ‘let’s sit back and look at your specific situation because everybody’s different,’” says Naomi Hamm, a mortgage broker with Centum Mortgage Choice in Brandon, Manitoba.

For example, Hamm says where she lives, home prices aren’t as high as in Vancouver or Toronto. The mortgages she sees are commonly for $200,000 or $300,000. Rates are still a few points higher than they were in 2022, but “the payments are not as scary as you may think.”

Comparing offers from several lenders is the best way to get the best rate for anyone renewing a mortgage. Depending on how much your income has dropped, however, you may have fewer options to consider.

Before you can switch to a new lender, you’ll need to requalify. That means passing the mortgage stress test, which compares income to debt.

If your income-to-debt ratio has dropped too far, you likely have a fallback option: As long as you haven’t missed mortgage payments, you can expect to receive a renewal offer from your existing lender, which doesn’t require you to requalify.

Finally, maybe your income has gone in the other direction — up. Younger workers, for example, tend to see faster wage growth than others, according to the Bank of Canada. They may be in a strong position to requalify elsewhere.

Whatever your situation looks like, working with a broker could reveal creative solutions. One example: If you project your income drop to be temporary — say you are finishing a degree or taking time off to care for a family member — it could make sense to opt for a shorter term in anticipation of qualifying for better terms in a few years.

Change #2: Your source of income looks different

Moving from one salaried position to another comparable position shouldn’t be an issue if you intend to shop around for the best rates.

However, if you’ve gone from earning wages to being self-employed, you’ll need to establish a track record. In most cases, lenders want to see two years of records showing consistent earnings.

If you’re new to freelancing, you can count on a renewal offer from your current lender, but you may have limited options when shopping for better rates. If you might transition to self-employment in the future, think about the timing of your next renewal before you switch.

Maybe you’ve retired, swapping earnings for retirement income. Lenders will want to review any pensions and retirement account balances that you have. If you’re planning to both retire and renew your mortgage in the near future, you may want to speak to a mortgage expert first to avoid complications.

Change #3: You have more debt

Carrying additional debt can hurt your chances at qualifying for the best possible rates at renewal. But it’s not always a deal breaker.

“Somebody can have a large debt load if they have a large enough income to offset that,” Hamm says.

What matters most is your track record. “Paying your bills on time is huge because that’s something that’s really hard to fix,” she says. “If you have been missing payments constantly on your credit card, the only thing that can fix that is time.”

Of course, a higher mortgage payment plus other debt obligations can put homeowners in a pinch. While the mortgage stress test can feel like a hindrance, its reason for existence is made clear in these instances: How well can a borrower cope with total debt loads if interest rates rise? The more money that leaves your bank account each month for debt payments usually means less money available to cover increased interest.

The bottom line

There are many reasons a homeowner’s financial profile can change: retirement, starting a family, losing or changing jobs, just to name a few.

Changes to your finances can lead to challenges at renewal, but there’s always an optimal path. Reviewing all available options is the first step to choosing the best one. Working with a mortgage broker is the most efficient way to do this, and they typically won’t charge you for the assistance.