Turn your mortgage into a wealth-building tool. Smith Manoeuvre strategies, tax-smart planning, and honest math from two Canadian mortgage strategists.
Lower Payment or Same Payment at Renewal: One Choice Costs Five Figures
The renewal letter leads with the good news: your new payment is a few hundred dollars lower than the one you've made every month for five years. If you locked in near the 2023 peak, a lower rate in 2026 feels like a reward for waiting it out. You sign, the payment drops, and the extra cash slips into the household budget.
That signature decides more than your monthly bill. When your rate falls at renewal, your lender recalculates your payment so the mortgage still finishes on its original amortization date (the total number of years you agreed to pay it off). The rate drop gets spread across the same long timeline instead of shortening it. You can take the savings as monthly cash or as years of freedom and a five-figure interest bill you never pay. The default choice gives it to the bank.
What a 1% rate drop does to a $700,000 mortgage, both ways
Here's an illustrative example, using round numbers. Say you have $700,000 left with 20 years of amortization remaining. Your old rate was 5%, and your renewal offer is 4%.
Option A: take the lower payment. At 5%, your payment was about $4,600 a month. At 4% over the same 20 years, the bank resets it to about $4,230. You keep roughly $370 a month. Over the 20 years, you pay about $315,000 in interest.
Option B: keep paying $4,600. The extra $370 goes straight to principal. That's the amount you actually owe, so every dollar of it stops collecting interest for the rest of the loan. The mortgage is gone in about 17 years and 8 months instead of 20. Total interest drops to about $275,000.
The gap is roughly $40,000 and more than two years of payments. It comes from the same rate, the same house and the same $4,600 you've already been paying.
Why keeping your old payment costs you nothing you'll feel
Most ways of paying off debt faster ask you to spend less. This one asks you to keep spending exactly what you spend now. Your budget has already absorbed $4,600 a month for five years, so you won't notice that money staying where it is.
The lower payment, by contrast, tends to disappear. A bill that shrinks gets treated as spare income, and a few hundred dollars a month gets absorbed into dinners and subscriptions without anyone deciding it should. Your lender is happy either way, because a longer loan earns them more interest.
A smaller balance also protects you at your next renewal. If rates climb again in five years, they apply to less debt. And if you use the Smith Manoeuvre™, a strategy that converts your mortgage into tax-deductible investment borrowing, every extra dollar of principal frees up room on your readvanceable line of credit sooner. That matters because the interest on the mortgage for the home you live in is not deductible.
The one situation where the lower payment wins
Take the $370 when it has a job that pays you more than 4%. If you carry a credit card or business line of credit at 10% or higher, pay that down first. If you're nearing retirement with most of your wealth in your house and little in the bank, building an emergency fund or adding to your TFSA (Tax-Free Savings Account) can be the better move.
If neither applies, your mortgage is the place where that money earns the most.
Before you sign, ask your lender to set your new payment at your current amount. Then confirm it fits within your payment-increase privilege. Most closed mortgages let you raise payments by a set percentage, though some low-rate, no-frills products restrict it. If you'd like your own numbers run both ways before your renewal date, send me your renewal letter and we'll go through it together.
The renewal letter leads with the good news: your new payment is a few hundred dollars lower than the one you've made every month for five years. If you locked in near the 2023 peak, a lower rate in 2026 feels like a reward for waiting it out. You sign, the payment drops, and the extra cash slips into the household budget.
That signature decides more than your monthly bill. When your rate falls at renewal, your lender recalculates your payment so the mortgage still finishes on its original amortization date (the total number of years you agreed to pay it off). The rate drop gets spread across the same long timeline instead of shortening it. You can take the savings as monthly cash or as years of freedom and a five-figure interest bill you never pay. The default choice gives it to the bank.
What a 1% rate drop does to a $700,000 mortgage, both ways
Here's an illustrative example, using round numbers. Say you have $700,000 left with 20 years of amortization remaining. Your old rate was 5%, and your renewal offer is 4%.
Option A: take the lower payment. At 5%, your payment was about $4,600 a month. At 4% over the same 20 years, the bank resets it to about $4,230. You keep roughly $370 a month. Over the 20 years, you pay about $315,000 in interest.
Option B: keep paying $4,600. The extra $370 goes straight to principal. That's the amount you actually owe, so every dollar of it stops collecting interest for the rest of the loan. The mortgage is gone in about 17 years and 8 months instead of 20. Total interest drops to about $275,000.
The gap is roughly $40,000 and more than two years of payments. It comes from the same rate, the same house and the same $4,600 you've already been paying.
Why keeping your old payment costs you nothing you'll feel
Most ways of paying off debt faster ask you to spend less. This one asks you to keep spending exactly what you spend now. Your budget has already absorbed $4,600 a month for five years, so you won't notice that money staying where it is.
The lower payment, by contrast, tends to disappear. A bill that shrinks gets treated as spare income, and a few hundred dollars a month gets absorbed into dinners and subscriptions without anyone deciding it should. Your lender is happy either way, because a longer loan earns them more interest.
A smaller balance also protects you at your next renewal. If rates climb again in five years, they apply to less debt. And if you use the Smith Manoeuvre™, a strategy that converts your mortgage into tax-deductible investment borrowing, every extra dollar of principal frees up room on your readvanceable line of credit sooner. That matters because the interest on the mortgage for the home you live in is not deductible.
The one situation where the lower payment wins
Take the $370 when it has a job that pays you more than 4%. If you carry a credit card or business line of credit at 10% or higher, pay that down first. If you're nearing retirement with most of your wealth in your house and little in the bank, building an emergency fund or adding to your TFSA (Tax-Free Savings Account) can be the better move.
If neither applies, your mortgage is the place where that money earns the most.
Before you sign, ask your lender to set your new payment at your current amount. Then confirm it fits within your payment-increase privilege. Most closed mortgages let you raise payments by a set percentage, though some low-rate, no-frills products restrict it. If you'd like your own numbers run both ways before your renewal date, send me your renewal letter and we'll go through it together.
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