Mortgage Renewal in Canada: Switch, Stay, or Restructure (and How to Tell the Difference)

Your renewal letter arrives, it has a rate on it, and there is a signature line at the bottom. Most Canadians sign it. That signature is the single most expensive thirty seconds in the entire life of a mortgage, because renewal is the one moment where you can move lenders, change products, or restructure the whole file without paying a prepayment penalty to do it. The penalty is zero. The leverage is at its maximum. And the majority of borrowers hand that leverage back to the lender by signing the first number they are shown.

Why 2026 is the year this actually matters

Roughly 60% of all outstanding Canadian mortgages come up for renewal in 2025 or 2026, and 2026 is the crest of that wave. The files renewing now were largely written in 2020 and 2021, when five year fixed rates were at their historic lows. Bank of Canada staff analysis puts the average payment increase for those five year fixed borrowers at roughly 15% to 20% compared with their December 2024 payment, with about 10% of 2026 renewals facing an increase of more than 40%. Not everyone is going up. Borrowers who rode a variable rate with variable payments through the rate cycle are often seeing payments come down.

What that means practically: a household that closed a $500,000 mortgage in 2021 at roughly 1.99% on a 25 year amortization has been paying about $2,115 a month. Five years of payments later the balance is around $418,750 with 20 years of amortization remaining. Renew that balance at an illustrative 4.29% and the payment moves to about $2,593. That is $478 more a month, an increase of about 23%. Nothing about that household changed. The contract simply reset against a different rate environment.

The rule change most borrowers still have not heard about

Until late 2024, a borrower with an uninsured mortgage who wanted to move to a different lender at renewal had to pass the stress test all over again at the new lender. Plenty of people could not. Incomes had not kept pace with qualifying rates, so they were effectively captive: the only lender who would renew them without requalification was the lender they already had, and that lender knew it.

OSFI amended Guideline B-20 effective November 21, 2024. Lenders are no longer expected to apply the minimum qualifying rate to a "straight switch" of an uninsured mortgage at renewal. Insured mortgages, meaning the ones with less than 20% down, had already been exempt for years. The practical effect is that the captive borrower problem largely went away right as the biggest renewal wave in Canadian history arrived.

The word doing the work in that sentence is "straight." To keep the exemption, the transfer has to move to another federally regulated lender with no increase to the loan amount and no increase to the amortization period. Add a single dollar of new money and it is a refinance, not a switch. Stretch the amortization from 20 years back out to 25 to soften the payment and you have also broken it. Either move puts the file back under the minimum qualifying rate, which is the greater of your contract rate plus 2% or 5.25%. If the stress test math is not familiar, the mechanics are laid out in the B-20 stress test explainer.

The detail that decides whether switching is cheap or expensive

Two mortgages with identical balances and identical rates can have very different switching costs, and the reason is how the charge was registered against the property when you signed.

A standard charge is registered for the exact mortgage amount and can be assigned from one lender to another. The new lender takes over the existing registration, which keeps legal costs low and often at zero for the borrower, because most lenders competing for transfer business absorb them.

A collateral charge cannot be assigned. It has to be discharged and a new charge registered, which means a real legal file with real legal fees, commonly in the range of $700 to $1,500 all in. Collateral charges are the default at some of the big banks, and most borrowers have no idea which one they signed. The good news is that a lot of lenders will cover switch costs to win the business, so the question to ask before assuming you are stuck is not "what does it cost" but "who is willing to pay it." On a file where the rate spread is worth $7,000 over the term, a $1,200 legal cost is arithmetic, not an obstacle.

Timing, and why the renewal letter is a trap

Most lenders will hold a renewal rate 120 to 180 days ahead of maturity, and a hold typically works in one direction: if rates fall before you sign, you generally get the lower one. Under the Canadian Mortgage Charter, federally regulated lenders are expected to notify borrowers four to six months ahead of the renewal date rather than the old habit of a letter thirty days out.

The trap is that the letter, whenever it lands, is not a market quote. It is an opening offer, and opening offers to existing clients are rarely the sharpest number that lender has. Banks price aggressively to acquire and comfortably to retain, which is a rational business decision on their side and an expensive one on yours. Starting at the 120 day mark gives you a locked rate as a floor and three to four months to see whether anyone will beat it. Starting when the letter arrives at day 30 gives you a deadline instead of a negotiation.

Three paths, and how to tell which one you are on

Renew where you are. Fastest, no legal work, no paperwork beyond a signature. Worth it when your current lender matches the market, or when something about your file (a recent income change, a credit event, self-employment structure) makes requalifying anywhere else genuinely uncertain. Loyalty is not the reason. A competitive number is.

Straight switch. Same balance, same remaining amortization, new lender, no stress test. This is the path the 2024 rule change opened up, and for a borrower whose only goal is a better rate, it is usually the cleanest move available. It is also the path that is easiest to accidentally break by asking for a small top-up at the same time.

Restructure. Pulling equity, consolidating higher interest debt, funding a suite or a build, or resetting the amortization deliberately. This is a refinance and it is fully underwritten, including the stress test. The reason to do it at maturity rather than mid term is that the prepayment penalty is zero, and mid term penalties on a fixed rate mortgage can be brutal depending on how your lender calculates three month interest versus IRD. If a restructure is anywhere on your five year horizon, maturity is almost always the cheapest door to walk through.

Running the math honestly

Take a $450,000 balance with 22 years of amortization left. Your lender offers an illustrative 4.79% and the market for that file is closer to 4.29%. Half a point does not sound like much. On this balance it is about $122 a month, roughly $7,300 across a five year term, and about $2,250 of interest in the first year alone. Against a worst case switch cost of $1,500, the decision is not close.

Now flip it. Same borrower, but the gap between the renewal offer and the market is 0.10%. That is about $25 a month. If the file carries a collateral charge and nobody is covering the legal fees, switching costs more than it earns for most of the term. The honest answer there is to take the renewal, or use the competing offer as leverage to close the small gap. Both outcomes are wins. Only one requires paperwork.

The variable I see people undervalue most is amortization. Stretching from 20 years back to 25 to bring a payment down is a legitimate tool when cash flow is genuinely tight, and it can be the right call. It also costs tens of thousands in additional interest over the life of the loan, and it disqualifies the straight switch exemption, which means the stress test comes back into the picture at exactly the moment your payment is already under pressure. Use it deliberately, with the number in front of you, not as a reflex to make the monthly figure look familiar again.

What to do with the next 120 days

Pull four numbers before you talk to anyone: your maturity date, your current balance, your remaining amortization, and whether your charge is standard or collateral. The first three are on your annual statement. The fourth is worth a phone call, because it is the number that turns a switch into a five figure decision or a five hundred dollar one. With those in hand, the comparison stops being about which rate sounds better and becomes a straight calculation you can actually check. The renewal decision calculator runs it side by side.

The thing I keep coming back to with renewal clients is that this is the only moment in a mortgage where changing your mind is free. Every other restructuring conversation starts with a penalty. This one starts at zero. Spending an hour on it, four months out, is the highest hourly rate most homeowners will ever earn.