Mortgage Renewals in Canada: What the Banks Aren’t Telling You
When your Canadian mortgage renewal letter arrives, do not simply sign and return it. Banks offer renewal rates 50-75 basis points higher than what you can get by shopping around. You can always auto-renew as a fallback if you can’t qualify elsewhere, so there is zero risk in comparing. The average “5-year” mortgage term actually lasts 3.6 years — banks profit from early-break penalties every time.
Here’s something that should make you uncomfortable: 47% of Canadians just sign whatever renewal offer their bank mails them without shopping around. They don’t compare rates. They don’t negotiate. They just check a box, sign their name, and lock themselves into an interest rate that is almost certainly higher than what they could get elsewhere.
I had mortgage expert Jeff Mudrick back on the podcast to walk through how mortgage renewals actually work in Canada, why the banks are getting away with giving people terrible rates, and what the static payment variable rate mess really looks like under the hood. If you have a mortgage renewal coming up in the next two years, this is essential reading.
The renewal letter trap
Here’s how it works. About three to four months before your mortgage term is up, your bank sends you a letter. It says: “Do you want to renew? Here are your options. Check a box. Sign your name.” That’s it. Your mortgage is renewed.
No underwriting. No income verification. No stress test. The bank doesn’t check if you still have a job. They don’t care. As long as your mortgage payments have been made, they’ll renew you. Sounds convenient, right?
Because the process is so simple — just sign a piece of paper — banks offer garbage interest rates on renewals. They know almost half of people won’t bother to shop around. Jeff was direct about it: “You will get a much lower interest rate if you shop around. The caveat is you have to qualify for that mortgage again.”
So here’s the trade-off that most people don’t even know they’re making. You can auto-renew with zero hassle and overpay by 50 to 75 basis points for the next five years. Or you can spend a few hours shopping your mortgage, potentially go through a new qualification process, and save thousands of dollars.
Jeff was so confident about this that he told his clients: send us your renewal offer. If we can’t beat the rate, he gives them $100. He said he’s never had to pay out. That’s how consistently bad the bank renewal offers are.
The static payment variable rate problem
This is the one that keeps me up at night. And it should concern anyone who has a variable rate mortgage with one of the big banks.
Here’s the setup: when you got a variable rate mortgage, some banks offer what’s called a static payment. Your payment amount stays the same even if interest rates go up. Sounds great in theory. In practice, when rates went through the roof over 736 consecutive days of increases, here’s what happened:
Jeff said he’s seen amortizations over 100 years. And the lenders aren’t doing anything about it. They’re just waiting for rates to come down and hoping the math fixes itself.
“A 35-year amortization at today’s interest rate — if your mortgage payment is $4,000 a month, you’re probably paying around $400 towards principal and $3,600 towards interest. That is a forever loan.”
Why the banks always win
I asked Jeff the obvious question: if the math doesn’t make sense on these products, why are banks still offering them? And why aren’t they panicking?
His answer was simple. Banks have multiple ways to make money off you regardless of what happens:
- If rates go up: They earn more on the interest spread. Your mortgage costs more, but the bank’s cost of funds doesn’t go up proportionally.
- If rates go down: More people buy and refinance. Volume increases. And they still charge penalties for breaking early.
- If you break your mortgage early: The average 5-year term actually lasts 3.6 years. The bank pockets the penalty every time.
- If you auto-renew: They give you a bad rate and you don’t even know it. Pure profit.
Jeff explained that if you Google “best five-year fixed rate” and find a lender offering 4.6% when banks are at 5.2%, you’re not getting a deal because you’re special. That lender has other ways to make money off you — it’s all in the fine print. Penalties, restrictions on prepayments, portability limitations. Always work with someone who can explain what the fine print actually means.
The doom and gloom question
I asked Jeff straight up: given everything he’s seeing with these inflated amortizations, these static payment products, these renewals — how likely is a doom and gloom scenario?
“My percentage would be under 1% that there’s going to be doom and gloom. Zero concern.”
His reasoning is solid. The banks have too many tools to make the math work. They can extend amortizations, adjust payments, restructure terms. And for most people renewing right now — the ones who locked in at 3.4% or 3.6% back in 2019 — their principal balances have come down significantly. So even at higher rates, their monthly payments stay roughly the same.
The people to watch are those who got the incredible 1.6% rates in 2020 and 2021. Those renewals are coming up, and those homeowners are going from paying $1,700 per month (most of it going to principal) to much higher rates. But even then, Jeff thinks they’ll be fine because they’ve hammered down so much principal that the balance they’re renewing is much smaller.
What to do when your renewal comes up
Do not sign the letter your bank sends you without comparing. Contact a mortgage broker, get competing offers, and then decide. The 20 minutes this takes could save you tens of thousands over the term.
This is the safety net people don’t know about. If you shop your mortgage and can’t qualify at current standards, you can always fall back to auto-renewing with your current lender. There’s zero risk to trying.
Jeff says a lot of people don’t even know they have this product. Call your lender and ask. If your variable rate payment hasn’t changed since you got the mortgage despite rates moving, you’re on a static payment. Understand what your actual amortization looks like now.
90% of Canadians never make a lump sum payment on their mortgage. They just make regular scheduled payments, which means the bank wins. If you can make even small additional payments, you’re fighting the “forever loan” problem directly. Most lenders allow 10-20% prepayment annually without penalty.
If you’re buying or selling in the GTA and your mortgage situation is part of the equation, let’s talk about how to structure your timing. Understanding where you stand with your mortgage is step one of any smart real estate decision.