New Year, New Mortgage Rates: What Renewal Really Costs You

2025 is winding down, and if there is one story that defined the year, it was falling interest rates. The Bank of Canada trimmed all the way into its final meeting of the year, and the policy rate settled at 2.25%.

The question I keep hearing from clients right now is about renewals. If your mortgage is coming up and your new rate is higher than what you locked in five years ago, what actually happens to your payment? Let me walk you through it with real numbers. I'm Moe Asgarian, a senior real estate broker in Toronto, ranked number 47 at RE/MAX worldwide.

Why renewals are the big story now

Mortgage terms in Canada usually run four or five years, and that timing matters. 2021 and 2022 were the years when mortgage rates were genuinely low. You could borrow somewhere between 1.5% and 2.5%. A lot of people took that deal and bought a home, which is exactly why renewals are the talk of every kitchen table right now.

There is a second point worth flagging. If you bought between 2021 and early 2022, your home may be worth a little less today than what you paid. If you plan to live there long term, that may not matter much. If you are thinking about selling, it is a real issue and you need to plan for it.

The good news on where rates landed

Here is the relief. Rates did not climb as high as the fear suggested. Plenty of people worried we might see mortgages at 6% or higher this year and next. If that had happened, a large number of homeowners would have faced a hard choice at renewal, or would have listed their homes to sell. It did not happen.

Yes, mortgages are more expensive than five years ago, but they did not multiply. As we close 2025 and step into 2026, what I am seeing from clients is renewals landing between 3.5% and 4%. That range holds whether you put less than 20% down and carry an insured mortgage, or you are conventional with 20% or more, and whether it is a rental or the home you live in.

What an $800,000 mortgage really looks like

Let me make this concrete. Take an $800,000 mortgage on a 25-year amortization at 2%. The monthly payment was $3,393. Now picture renewing this year and going from 2% to roughly 3.8%, close to double the rate. Because you spent five years paying down the principal, the new payment comes out to about $3,810. That is an increase of around $417 a month, or about 12.3% more. It is not small, but it is manageable.

Where your payment actually goes now

This is the part most people miss. In the first five years at that low rate, about 78% of your payments went straight to principal and only 22% to interest. That is unusual, and it is a gift of cheap money. After renewal the math shifts. Even after knocking $160,000 off the principal in those first five years, the interest you pay over the next five years runs close to $118,000, roughly $120,000.

So the split moves from 78/22 toward something near 50/50. The biggest effect of those ultra-cheap mortgages was never really the payment amount. It was where your money was going. You were paying almost no interest before. Now, with a smaller balance, you are paying far more of it.

Finding the balance point

So where is the sensible middle? When I look at this, the balance point sits around a 3% mortgage. At roughly 3%, you pay a fair share toward principal and a reasonable share of interest. Above that, the interest portion grows. Below it, more of your payment goes to principal. If you are borrowing for the first time or sitting at a renewal, that is the frame I would keep in mind.

The takeaway is that things are far better than the early fear suggested, and payments are not rising by scary numbers. Just remember that under these new terms a bigger slice of each payment is interest. If you want to make a clean, confident decision, fill out the form at the bottom of this page or book a free consultation and we will go through your specific situation together. Stay well and take care.