Income-property mortgage renewal on the South Shore

Plenty of the plex and income-property owners I meet financed at the bottom of the rate cycle, in 2020 or 2021. Those five-year terms are coming due now, and the payment is not going back to where it was. The Bank of Canada's October 28 decision will do almost nothing to change that. Here's how to approach a renewal on the South Shore without getting caught off guard.

The renewal wall, in numbers

The Bank of Canada put a number on this in a staff note. About 60% of all outstanding mortgages in the country are set to renew in 2025 or 2026. That isn't a small subgroup, it's most borrowers.

And for anyone holding a five-year fixed term, the step up is steep. The Bank estimates that this profile, which accounts for roughly 40% of all mortgages, sees its monthly payment climb by about 20% on average when it renews in 2026, compared with the December 2024 payment. Close to six in ten borrowers renewing in 2025 or 2026 will see their payment rise, and three-quarters of them hold that same five-year fixed term. If you bought your building with that kind of loan back when rates were at rock bottom, you're in the group.

October 28 is not your lifeline

A lot of investors are waiting on the Bank's next decision, hoping for a cut that would ease the bill. I understand the instinct, but look at what economists actually expect. The Bank held its policy rate at 2.25% on September 2, a seventh straight hold. For October 28, nesto reports that most economists expect another hold, and that the next move could be an increase rather than a cut, possibly as early as 2027. Markets were putting the odds of a hike this month at about one in four.

In other words, the best case for a renewal right now is the status quo. On the rate side, the five-year fixed is running around 4.59% for an insured loan, and the big-bank average for an uninsured loan is close to 5.39%, according to nesto as of October 19. The insured variable sits lower, near 3.41%, but it moves with the Bank. Between a term signed near 2% and a renewal around 4.5% to 5.4%, the gap gets paid every single month.

What the renewal does to your building

On a two- to four-unit plex you live in, the loan is often residential, and you take exactly the same hit as a homeowner. The difference is that your building earns rent, and that rent doesn't always keep up with the new payment. If your rents sit below market, the gap comes out of your pocket.

On a larger building financed on commercial terms, the lender runs the math again at renewal. It checks that net income covers the debt service at today's rate, not the one from 2021. A building that passed the test at 2% can come up short at 5%, and the lender may then ask for more equity or a reworked amortization. For a building of five units or more, CMHC's MLI Select program is still worth exploring at refinancing, especially if energy or accessibility upgrades are on the table.

And the selling backdrop has shifted. In September, listings in the Montreal area were up 20% year over year, a fourteenth straight month, and inventory sat 18% above its ten-year average, according to the QPAREB. Sales were down 12%. For an owner who'd be forced to sell because of a renewal, that means more competition and less pressure on prices. Far better to decide calmly now than in a hurry come spring.

What this means for you

• You own a building and your term is coming due: start four to six months ahead. Ask for your renewal offer, but shop it around too, the rate your bank proposes isn't always the best one. Test your budget at the new payment, and check whether stretching the amortization absorbs the increase. The Bank of Canada notes that about half of the borrowers facing a higher payment could erase it by extending their amortization by five years. Check where your rents sit against the market too, that's often where the margin is hiding.
• You're looking to buy: build your numbers at today's rate, not the one you're hoping for next year. Compare actual rents to market rents, budget the repairs, and keep a cushion. A well-placed building in Longueuil, Brossard or Saint-Lambert, bought at a price that works at the current rate, protects you better than a bargain whose numbers only hold up with a hypothetical cut.
• You're thinking about selling: if the renewal makes the building hard to carry, it's better to talk early. With more listings on the market, the price has to be right from day one and the building's numbers have to be clean. Have the real value established from your leases and your expenses, not a regional average, so you go in with a solid file in front of a serious buyer.

I work both residential and commercial, and the income property sits right where the two meet. If your term is coming due, or you're weighing whether to hold or sell, let's talk about your actual situation. Request a free evaluation or write to me directly. I answer myself, every time. I've also written about mortgage renewal on the residential side and about cap rates on the South Shore.