Buying a home in Canada is an exciting milestone, but the reality of monthly mortgage payments can sometimes feel overwhelming.

If you’ve been wondering how to reduce monthly mortgage payments, you’re not alone. Many homeowners look for ways to ease the financial burden while still paying off their home efficiently.

In this guide, we’ll explore practical and effective strategies to lower your mortgage costs and keep more money in your pocket.

Whether you’re dealing with high-interest rates, struggling with cash flow, or simply looking for ways to optimize your finances, these tips can make a significant difference.

TL;DR:
Buying a home in Canada can be costly, but you can reduce your monthly mortgage payments by refinancing, switching to variable rates, extending your loan term, making extra or lump-sum payments, adopting biweekly payments, negotiating with lenders, shopping for better deals, porting your mortgage, renting out part of your home, or using the Home Buyer’s Plan. Choose the strategy that best fits your financial situation to save money and manage your mortgage smarter.

1. Refinance Your Mortgage to Lower Monthly Payments

Refinancing your mortgage means replacing your existing loan with a new mortgage that has better terms—usually a lower interest rate or longer loan term. This can significantly reduce your monthly mortgage payments and save you money over time.

In Canada, mortgage rates fluctuate based on economic conditions. Since the beginning of the year, 3-year and 5-year fixed mortgage rates have generally been trending downward, though they have recently started to rise slightly, reaching the low 4% range. A lower rate can mean substantial savings over time.

How It Works:
When you refinance, you take out a new mortgage to pay off your existing one. Ideally, the new loan will come with a lower interest rate, which can reduce your monthly payments and the overall interest paid over the life of the loan.

Detailed Example:
Let’s say you have a $560,000 mortgage with a 4.6% interest rate. If you refinance to a 4.1% interest rate, your monthly payment could drop significantly. Over a 25-year term, the difference could be about $155 per month — adding up to more than $46,352 in interest savings.

Steps to Refinance:

• Check Your Credit Score: Your credit score plays a crucial role in determining the interest rate you’ll receive. Make sure it’s in good shape before applying.
• Shop Around for Lenders: Compare offers from different lenders to find the best rates and terms.
• Calculate the Costs: Refinancing usually involves closing costs and potential penalties for breaking your current mortgage. Make sure the savings from a lower interest rate outweigh these costs.
• Consult a Mortgage Broker: A broker can help you explore the best options tailored to your situation.
• Apply for a Refinance Loan: Submit your application, provide the necessary documentation, and await approval.

Useful Resources:

• Ratehub’s Mortgage Refinance Calculator helps you estimate potential savings from refinancing.
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2. Switch to Variable-Rate Mortgage (If It Makes Sense)

Variable-rate mortgages often have lower initial rates than fixed-rate mortgages. If interest rates are trending downward, switching could reduce your monthly payment.

Example:

Mat was paying $2,100 per month on a fixed-rate mortgage. He switched to a variable-rate mortgage early this year, which immediately reduced his payment to $1,900—saving $200 per month.

Considerations before switching:

• Interest rates fluctuate, so payments may increase in the future.
• Not all lenders offer an easy transition from fixed to variable and you might have to pay a penalty for switching.
• Consult with a mortgage specialist to assess risks and rewards.

3. Extend Your Loan Term

Extending the term of your mortgage is another way to lower your monthly payments. By stretching out the loan term, you reduce the amount of each payment, though you might pay more in interest over time.

How It Works:
If you currently have a 15-year mortgage, extending it to a 20-year term will decrease your monthly payment. However, this means you’ll be paying interest for a longer period.

Detailed Example:
For a $560,000 mortgage at a 4.6% interest rate, the monthly payment on a 15-year term would be about $4,300.16. Extending the term to 20 years lowers the monthly payment to roughly $3,559.95, giving you immediate relief in your monthly budget. However, this comes at a cost — you’d pay about $80,359 more in interest over the life of the loan.

When Extending Makes Sense

• You’re facing cash flow strain (e.g., higher living costs, income drop, childcare costs, or unexpected expenses).
• You want more flexibility to direct money toward other priorities (investments, retirement savings, high-interest debt repayment).
• You expect to make lump-sum prepayments later — extending the term now lowers your required payments, but you can still pay it off faster when finances improve.

When to Be Cautious

• If you’re close to retirement, extending may keep you in debt longer than you’d like.
• If interest rates are high, the extra years multiply the cost of borrowing.
• If you’re already comfortable with current payments, you might be better off keeping the 15-year term to be debt-free sooner.

Steps to Extend Your Loan Term:

1. Contact Your Lender: Inquire about the possibility of extending your loan term.
2. Understand the New Terms: Make sure you understand how the extension will affect the total interest paid.
3. Adjust Your Budget: Factor in the new monthly payment into your budget.

Useful Resources:

• Use Wowa’s Mortgage Calculator to compare your original loan versus an extended term, and see how changing loan terms affects your payments.

4. Make Extra Payments

Making extra payments — even small ones — toward your mortgage principal can significantly reduce the amount of interest you pay and shorten the life of your loan.

How It Works:
Extra payments are applied directly to the principal balance of your mortgage, reducing the amount of interest you’ll pay over time. The faster you lower the principal, the less interest accrues.

Detailed Example:
Suppose you have a $560,000 mortgage at a 4.6% interest rate with a 25-year term and a monthly payment of $3,559.95. By making an additional $100 payment each month, you could pay off your mortgage about 11 months earlier and save approximately $15,000 in interest over the life of the loan.

Steps to Make Extra Payments:

• Determine How Much Extra You Can Afford: Review your budget to decide how much extra you can comfortably contribute each month.
• Specify Payment Allocation: Clearly instruct your lender to apply the extra payment directly to the principal.
• Set Up Automatic Payments: Consider automating your extra payments to stay consistent and ensure you don’t forget.

5. Make a Lump Sum Payment to Reduce Principal

If you come into extra money—such as a tax refund, work bonus, or inheritance—consider making a lump sum payment toward your mortgage.

Most Canadian lenders allow prepayments of up to 15% of your original mortgage balance each year without penalties.

This can significantly reduce the amount of interest you pay and shorten the life of your loan.

Example:

Lily received a $20,000 bonus at work. Instead of spending it, she applied it directly to her mortgage principal on a $560,000 loan with a 4.6% interest rate and a 25-year term. By asking the bank to adjust her monthly payment while keeping the original loan term, she reduced her monthly payment by about $112 and saved approximately $13,543 in interest over the life of the mortgage.

6. Make Biweekly Payments

Switching to biweekly payments can accelerate your mortgage payoff and reduce the total interest paid.

How It Works:
Instead of making 12 monthly payments, you make 26 biweekly payments each year. This effectively results in one extra monthly payment annually, reducing your principal balance faster.

Detailed Example:
For a $200,000 mortgage with a 4% interest rate, switching to biweekly payments could save you over $15,000 in interest and shorten your loan term by about 5 years.

Steps to Set Up Biweekly Payments:

1. Contact Your Lender: Confirm if they accept biweekly payments.
2. Adjust Your Budget: Ensure you can afford the biweekly payments.
3. Automate Payments: Set up automatic biweekly payments to stay consistent.

7. Negotiate with Your Lender for Better Terms

Many Canadians don’t realize that mortgage terms are negotiable. If you have a good payment history, your lender may be willing to offer better rates or conditions.

How It Works:
Contact your mortgage lender and request a reduction in your interest rate or a modification of your payment terms. Lenders may be willing to negotiate to keep you as a customer.

Detailed Example:
If you successfully negotiate a lower interest rate from 4.6% to 3.8%, you could see a reduction in your monthly payment and savings on the overall interest paid. This is the case of one of my friends who reached out to the bank to negotiate the mortgage rate and was able to reduce the mortgage rate from 4.2% to 3.9%.

Steps to Negotiate with Your Lender:

1. Prepare Your Case: Gather documentation showing your current financial situation and payment history.
2. Request a Meeting: Contact your lender to discuss potential modifications.
3. Compare Offers: Ensure that any new terms are better than your current ones.
4. Work with a mortgage broker: for additional leverage if needed.

Useful Resources:

• Wowa’s Banks Mortgage Rates offers guidance on the prevailing rates offer by banks in Canada.

8. Shop for Better Mortgage Deals

When your mortgage term ends or if you’re looking to purchase a new home, shopping around for the best mortgage deals can significantly impact your payments.

How It Works:
Comparing rates and terms from multiple lenders can help you secure the most favorable mortgage conditions, potentially lowering your monthly payments.

Detailed Example:
If you secure a mortgage with a 3.5% interest rate compared to 4%, you could save hundreds of dollars annually on your mortgage payments, improving your overall financial situation.

Steps to Shop for Mortgage Deals:

1. Research Lenders: Look for reputable lenders and compare their offers.
2. Consider Your Needs: Determine what terms and rates best fit your financial situation.
3. Negotiate Terms: Don’t hesitate to negotiate terms with lenders.

Useful Resources:

• Wowa’s Banks Mortgage Rates offers guidance on the prevailing rates offer by banks in Canada.

9. Take Advantage of Mortgage Portability

If you ever wonder how to reduce your monthly mortgage payments, mortgage portability might be one of the best options.

Porting your mortgage means transferring your current mortgage—including the interest rate, term, and conditions—to your new home when you sell your existing one, instead of breaking the mortgage and incurring penalties.

You typically must complete the sale of your old home and purchase the new one within a 30 to 120-day window designated by your lender.

This allows you to keep your existing rate and avoid penalties for breaking your mortgage early.

Example:

David moved from Mississauga to Ottawa. Instead of getting a new mortgage at a higher rate, he ported his current one, keeping his lower payment intact.

Pros of porting your mortage:

• Maintains a potentially lower interest rate than current market rates.
• Avoids hefty prepayment penalties associated with breaking a mortgage early.

Cons of porting your mortage:

• Not all mortgages are portable—some fixed-rate contracts are too restrictive.
• Requires re-qualification, including credit checks and income verification.
• Short porting timelines (30–120 days) may be tight depending on your home sale and purchase timing, particularly in this slow summer market.

10. Rent Out a Portion of Your Home

If you have extra space, renting out a basement apartment or a spare room can generate additional income to offset your mortgage costs.

Example:

My friend Hannah rents out her basement suite for $2,000 per month. This extra income covers half of her mortgage payment, helping her save more for investments and emergencies.

How to get started:

• Check local zoning laws and landlord-tenant regulations in your province.
• Make sure your home is suitable for renting (separate entrance, kitchen, etc.).
• Screen tenants carefully to avoid potential issues.

11. Utilize the Home Buyer’s Plan (HBP) for RRSP Withdrawals

If you’re a first-time homebuyer in Canada, you can withdraw up to $35,000 from your RRSP tax-free under the Home Buyer’s Plan to reduce your mortgage principal and lower payments.

Example:

David and Lisa withdrew $35,000 each from their RRSPs to make a larger down payment, which reduced their mortgage payments by $400 per month.

Related content:

• FHSA vs RRSP: Which One is Better for First-Time Homebuyers?

Final Thoughts: Choose the Best Strategy for You

Figuring out how to reduce monthly mortgage payments is all about understanding your options and choosing what works best for your financial situation. Whether it’s refinancing, extending your amortization, making lump sum payments, or renting out a portion of your home, there are many ways to ease the burden.

By taking a proactive approach, you can enjoy the benefits of homeownership while keeping your budget in check. If you’re unsure which strategy is right for you, consider speaking with a financial advisor or mortgage specialist to explore the best path forward.

What strategies have you used to lower your mortgage payments? Share your experiences in the comments below!

Have more questions about reducing your mortgage payments? Here are answers to some of the most frequently asked questions from Canadian homeowners like you.

Frequently Asked Questions (FAQs)

Q1: How does my credit score affect my mortgage interest rate?
A1: In Canada, a higher credit score can help you qualify for lower mortgage interest rates. Keeping your credit healthy improves your chances of securing better refinancing deals, which can save you money over the life of your mortgage.

Q2: Can I refinance if I have bad credit or recently missed mortgage payments?
A2: Refinancing with bad credit or recent missed payments can be difficult, but some lenders offer alternative mortgage options. Improving your credit before applying usually helps you get better rates and terms.

Q3: What costs should I expect when refinancing my mortgage in Canada?
A3: Refinancing often involves costs such as penalties for breaking your existing mortgage, appraisal fees, legal fees, and administrative charges. Always compare these costs with your potential savings to decide if refinancing makes sense.

Q4: What happens if I can’t afford my mortgage payments anymore?
A4: If you’re struggling to make payments, contact your lender immediately. They may provide solutions like payment deferral, refinancing options, or loan modifications to help you avoid default or foreclosure.

Q5: Does switching lenders for refinancing impact my credit score?
A5: Applying for a new mortgage creates a credit inquiry, which might slightly lower your credit score temporarily. However, multiple inquiries within a short time frame are usually counted as one by Canadian credit bureaus, minimizing the impact.