Canadian renewal shock: modeling a 3.49% to 6.25% jump
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By Editorial team
A $520,000 Ontario home with 20% down produces a $416,000 mortgage. At a 3.49% fixed rate on a 25-year amortization, the monthly payment is $2,075. When the 5-year term ends and the borrower renews at 6.25%, that same amortization schedule jumps to $2,606/month, an increase of $531/month (about 26%) on a loan that is only partially paid down. Over the remaining 20 years, the shock scenario adds $127,573 in total interest compared to renewing at the original rate. This article is for Canadian borrowers whose 5-year terms are renewing between 2024 and 2027 and want to see exactly what the jump looks like before it happens.
The scenario modeled
Both tabs start identically: $520,000 purchase, 20% down, $416,000 borrowed at 3.49% fixed on a 25-year amortization with a 5-year term. At the renewal boundary (month 60), tab A renews flat at 3.49% (the "no-shock" baseline) and tab B renews at 6.25% (the shock scenario). Both tabs retain the original 25-year amortization, so the increase is absorbed entirely by a higher monthly payment rather than a longer schedule. All math uses Canadian semi-annual compounding as required by the Interest Act.
| Input | Renew at 3.49% (no shock) | Renew at 6.25% (shock) |
|---|---|---|
| Purchase price | $520,000 | $520,000 |
| Down payment | $104,000 (20%) | $104,000 (20%) |
| Mortgage amount | $416,000 | $416,000 |
| Original rate (years 1-5) | 3.49% fixed | 3.49% fixed |
| Renewal rate (years 6-25) | 3.49% | 6.25% |
| Amortization | 25 years | 25 years |
| Province | Ontario | Ontario |
The findings
At renewal, the shock scenario pushes the monthly payment from $2,075 to $2,606. Annualized, that is $6,372 more per year in mortgage cost, arriving in one step. The borrower has no gradual adjustment period, no warning other than the renewal letter that typically arrives 30-60 days before the term ends. Over the 20 years remaining after renewal, the rate difference compounds into $127,573 in additional interest.
Looking for the fixed-vs-variable comparison that feeds into renewal planning? Fixed vs variable rate mortgage in Canada covers the term-selection decision upstream.
| No shock (3.49%) | Shock (6.25%) | Difference | |
|---|---|---|---|
| Monthly payment, years 1-5 | $2,075 | $2,075 | Same |
| Monthly payment, years 6-25 | $2,075 | $2,606 | $531/month more (+26%) |
| Total interest over 25 years | $206,431 | $334,004 | $127,573 more |
| Annual cost increase at renewal | $0 | $6,372/yr | Arrives in one step |
Canadian context
The Bank of Canada's Financial Stability Report flagged renewal risk as a key concern through 2025 and 2026. About 60% of all Canadian mortgages outstanding in 2022 are scheduled to renew between 2024 and 2026, and most of those were locked in during the 2020-2022 low-rate window at rates under 3%. Even after the Bank of Canada's rate cuts beginning in mid-2024, the renewal rate for many borrowers lands 2-3 percentage points above their original rate. The Bank's stress tests suggest median payment increases of 20-30% at renewal for fixed-rate borrowers in this cohort.
Source: Bank of Canada, "Financial Stability Report - 2024," accessed April 2026. URL: https://www.bankofcanada.ca/2024/05/financial-stability-report-2024/
When this scenario applies, and when it does not
This scenario fits when: you locked a Canadian fixed-rate mortgage at 3% or lower between 2020 and 2022, your 5-year term is ending within the next 12 months, and you want to see concrete numbers before your renewal letter arrives. Use the calculator to try your own rate inputs - if your bank offers 5.75% instead of 6.25%, rerun the second tab with that rate.
It does not apply cleanly when:
- You have a variable-rate mortgage. Variable-rate borrowers have already absorbed most of the payment shock as the Bank of Canada raised rates in 2022-2023. For them, renewal is often a chance to lock in at lower rates than their recent variable payments.
- Your amortization is under 10 years remaining. With less principal left to amortize, the rate shock produces a smaller absolute payment increase than in our modeled scenario.
- You plan to sell or refinance within 12 months of renewal. A short holding period means the cumulative interest cost of the shock is limited, and the break penalty on a shorter-term renewal is smaller.
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Frequently asked questions
- What is renewal shock?
- Renewal shock is the jump in your monthly payment when a Canadian mortgage term ends and you renew at a materially higher rate than your original contract rate. Because Canadian terms are typically 5 years, a borrower who locked at 3.49% in 2021 and renewed in 2026 at 6.25% would see their payment rise by several hundred dollars per month on the same amortization schedule.
- How much will my payment go up at renewal?
- In the modeled $416k Ontario mortgage, the payment rises from $2,075/month at 3.49% to $2,606/month at 6.25% - a $531/month increase, or 26%. The exact increase depends on your remaining balance at renewal, the rate gap, and whether you re-amortize over the remaining 20 years (steeper increase) or request a longer amortization (smaller increase but more lifetime interest).
- Can I extend my amortization at renewal to reduce the payment?
- Sometimes. For conventional (uninsured) mortgages, most Canadian lenders will allow you to re-amortize up to 30 years at renewal, which lowers the monthly payment at the cost of more total interest. CMHC-insured mortgages are capped at the original 25-year amortization for renewals. If your loan was insured, you cannot extend at renewal without switching lenders and potentially losing the insured status.
- Should I switch lenders at renewal to get a better rate?
- Almost always get a competing quote before accepting your current lender's offer. The "posted rate" your existing lender sends in the renewal letter is rarely the lowest rate they will accept, and a mortgage broker or rival bank may offer 20-50 basis points less. Switching lenders does trigger a new appraisal and possibly a legal fee, but the interest savings over a 5-year term almost always more than cover those costs.
- What if I can't afford the renewal payment?
- Talk to your lender well before the renewal date. Options usually include extending the amortization (on conventional loans), refinancing into a new loan with different terms, or in more difficult cases, a short-term "bridge" product. Missing a renewal or falling behind after renewal affects credit scores and can lead to power-of-sale proceedings. Canadian lenders are generally willing to work with borrowers who flag the problem early.