Why Rising Interest Rates Don’t Always Equal Disaster
Why Rising Interest Rates Don’t Always Equal Disaster — And How You Can Stay Ahead
When I first met Sarah, a young professional, she confessed she was terrified every time the Bank of Canada hinted at a rate hike. “If rates go up, I’ll never afford to renew,” she said. A few years later, when rates did climb, Sarah didn’t collapse under the weight of her mortgage, she had prepared. That’s what I want to help you do: understand what rising rates really mean, what risks to watch, and how you can take proactive steps to stay ahead.
What does “rising interest rates” really mean for mortgage holders?
Interest rates directly affect the cost of borrowing. For Canadians, that often translates into higher mortgage payments when your term ends or if you're on a variable rate. But the impact is rarely uniform, and many homeowners survive, even thrive in rising‑rate environments.
Let’s look at the big picture:
Canada’s residential mortgage debt has hovered above C$2 trillion in recent years.
In 2024, delinquency (mortgages in arrears) rose slightly but remained extremely low: around 0.19 % in Q2 2024.
Regulators are warning about “renewal shock”: many mortgages signed at low rates in 2020–22 are coming due between now and 2026, meaning people will face much higher interest rates when they renew.
Here’s the key: the damage from rising rates often comes not from a small rate increase, but from unpreparedness, taking on too much debt, having little buffer, or relying on short fixed terms without flexibility.
What’s changing now: trends to watch
Uninsured mortgages are growing faster than insured ones
Since about 2017, uninsured mortgages (those with down payments above 20% or otherwise not backed by mortgage insurance) have grown faster than insured ones. That means more borrowers are exposed to market risks without the “safety net” features that come with insured mortgages.Payment shock risk at renewal
As noted above, a large chunk of mortgages are renewing soon. That’s when even modest rate increases can translate into big monthly payment jumps.Lenders and regulators increasing caution
Canada’s banking regulator has recently encouraged banks to take “smart risks,” particularly to support more business lending, but also to keep mortgage exposure under control.
How borrowers like you can prepare: strategies that actually help
1. Build room in your budget before your renewal
Let’s say you have a mortgage now at 3 %. At renewal, you might face 5 % or more. If your monthly payment jumps from $2,400 to $2,800, you need to have built spare cash flow already - cut discretionary costs, boost savings, or prepay your mortgage a little when rates are lower.
2. Use amortization, not just rate, to manage risk
Let me give you two scenarios:
In times of rising rates, many clients choose a slightly longer amortization instead of pushing all the risk into term renewal.
3. Consider a mix of fixed + variable exposure
You don’t necessarily have to go all-in on fixed or variable. A split (e.g. 60 % fixed, 40 % variable) gives you some protection if rates rise, but also lets you benefit if variable rates drop. Some borrowers use small portions of variable just as a “buffer” rather than full exposure.
4. Re‑evaluate your refinancing and lump‑sum strategies
If rates are favorable relative to your current, making a lump-sum prepayment can reduce the principal you have to renew later. But if interest rates are very high, locking into an overly long fixed term may cost more in the long run. Always run the “break‑even” math.
A story of resilience: how one couple survived renewal shock
Let’s go back to Sarah and her husband, David. In 2020, they locked in a 5‑year fixed rate when rates were ultra low. They were cautious: every month they set aside extra money, treating it like forced savings.
When their term came up in 2025, rates had doubled. Their first quote was crushing. But because they’d built a “buffer,” they had three choices:
Accept a shorter amortization and higher payment temporarily.
Use a lump-sum draw from their buffer to reduce the amount being renewed.
Choose a slightly longer amortization than before to cushion the payment increase.
They went with a combination. They found a lender that allowed a flexible amortization, applied their buffer, and kept enough locked in with fixed exposure to avoid too much volatility. Their new payment was higher, yes, but manageable. They didn’t panic. They were prepared.
Bottom line (what I want you to take away)
Rising interest rates don’t have to spell disaster if you plan ahead.
The biggest risk is renewal shock: that’s when many homeowners feel squeezed.
Strategies like buffering your budget, splitting fixed + variable, or using lump sums can reduce that shock.
I want to help you map out your next renewal today, not wait until it hurts.
If you’d like me to run the numbers for your specific mortgage, project your payment in multiple rate‐scenarios, or show you how much buffer you need to feel safe, reach out! I’m always happy to go through it with you.
Contact us today at 204-997-5021 or mcabral@204mortgages.com to learn more!
