Worked Renewal Numbers and Checklists
How much will my mortgage payment go up at renewal? A worked example
Calculate the payment increase when a low-rate Canadian mortgage term ends, with a full worked example, a rate sensitivity table and three ways to soften the jump.
Your new payment at renewal depends on three numbers: the balance left at maturity, the new rate, and the amortization you have left. Plug them into the standard mortgage payment formula and compare with your current payment. For a household that locked a five-year fixed rate near 2% in 2021 and renews around 4.3%, the payment can rise by 20% or more even though the balance is lower. The worked example below shows the arithmetic, a table of outcomes at different rates, and the effect of extending the amortization or making a lump-sum payment.
This guide is part of the mortgage renewal checklist. All rates are illustrative, not current offers.
Step 1: find your balance at maturity
Your lender's renewal statement shows the exact balance. Earlier, use your amortization schedule or online banking, or estimate it.
Illustrative mortgage:
- Original amount in 2021: $500,000
- Rate: 1.99% five-year fixed, semi-annual compounding
- Amortization: 25 years
- Monthly payment: $2,114.84
After 60 payments, the balance is about $418,763. Over those five years you paid about $45,654 of interest and about $81,237 of principal.
Step 2: work out the new payment
The renewal offer is 4.29% for a five-year fixed term. Remaining amortization: 20 years (240 months).
For a fixed rate compounded semi-annually, first convert to a monthly rate:
- Monthly rate = (1 + 0.0429 / 2)^(1/6) - 1 = about 0.3543%
Then apply the payment formula, payment = balance x r / (1 - (1 + r)^-n):
- $418,763 x 0.003543 / (1 - 1.003543^-240) = about $2,593.61
The payment rises by $478.77 a month, or about 22.6%. Over a year that is $5,745 more.
The renewal payment calculator uses monthly compounding and shows about $2,602 for the same inputs, a few dollars higher than a semi-annually compounded fixed mortgage.
Why the payment rises even though you owe less
In month one of the old term, interest was about $826 of the $2,114.84 payment. In month one of the new term at 4.29%, interest is about $1,484. The interest share almost doubles, so a larger payment is needed to keep paying the loan off in 20 years.
Step 3: test other rates
Same balance and amortization, five-year fixed, semi-annual compounding:
| Renewal rate | New payment | Change from $2,114.84 |
|---|---|---|
| 3.79% | $2,485.07 | +$370.23 |
| 4.29% | $2,593.61 | +$478.77 |
| 4.79% | $2,704.52 | +$589.68 |
| 5.29% | $2,817.75 | +$702.91 |
Each half-point of rate adds roughly $110 a month on this balance. That is the value of negotiating: even 0.15 of a point is worth about $33 a month here.
Step 4: three ways to soften the increase
| Option | Payment | Interest over new 5-year term | Balance after 5 years |
|---|---|---|---|
| Renew as is: 20 years left | $2,593.61 | $81,570.14 | $344,716.74 |
| Extend amortization to 25 years | $2,269.10 | $83,752.15 | $366,368.88 |
| Pay $20,000 lump sum at maturity, 20 years | $2,469.74 | $77,674.38 | $328,253.17 |
- Extending the amortization brings the increase down to $154.26 a month, but you pay $2,182 more interest in this term and owe $21,652 more at the end of it. Whether that is allowed depends on your lender and whether the mortgage is insured. See extending your amortization.
- A lump sum on the maturity date, usually penalty-free, cuts the increase to $354.90 and saves interest, but uses savings you may need. See prepayment privileges at renewal.
- A lower rate through negotiation or switching helps every month. See renew or switch and negotiating your renewal.
Step 5: check the budget
Before choosing, write down your monthly take-home pay and essential costs. A simple test: after the new mortgage payment, property tax, heating and other debt payments, is there still room for groceries, transport, childcare and savings? Lenders' debt service ratios are one guide, but your own budget is the one that matters.
If the new payment does not fit, contact your lender before maturity and ask about relief under the Canadian Mortgage Charter.
Common errors in the calculation
- Using the original amortization (25 years) instead of the remaining amortization (20 years)
- Using the original loan amount instead of the balance at maturity
- Forgetting that a fixed-payment variable mortgage may have had negative amortization; see the variable payment reset
- Comparing payments on different amortizations as if they were the same deal
- Ignoring property tax if it is collected with your mortgage payment
Frequently asked questions
Will the lender tell me the new payment?
Yes. The renewal statement shows the payment for the term offered. If you ask for a different term or amortization, ask for the new payment in writing.
Is a bigger payment at renewal always bad?
Not necessarily. More of the higher payment may still go to principal, and a higher rate is the main cause. It is a budgeting problem, not a sign the mortgage is going wrong.
Can I choose biweekly payments to lower the cost?
Accelerated biweekly payments pay more each year and shorten the amortization. They raise your outflow rather than lower it, so they do not help with payment shock. Plain biweekly payments cost about the same as monthly.
Does property tax change the calculation?
If your lender collects property tax with the mortgage, your total withdrawal will be higher than the mortgage payment. The tax part depends on your municipality, not the rate.
Sources
- Financial Consumer Agency of Canada — mortgage payment calculator and renewal guidance
- Bank of Canada — research and data on mortgage renewals and interest rates
- Justice Laws Website — the Interest Act and how fixed rates must be stated
