Your Break-Even Renewal Rate: The One Number to Know Before You Renew

A lot of Canadian investors locked in five-year terms around 2% in 2020 and 2021. Those terms are coming due now, and the question everyone asks their lender is "what rate can I get?"

The better question to answer first is: what is the highest rate my rental can handle? That number is your break-even renewal rate. Below it, the property still pays for itself. Above it, you are topping it up from your own pocket every month. Know it before you call your lender, and every offer you get becomes easy to judge.

Watch the Full Walkthrough

This 7-minute video runs the example below live in Rental Analyst: the break-even rate, four rate scenarios, how rent growth closes the gap, the amortization reset, and a stress test.

What the Break-Even Renewal Rate Is

Your break-even renewal rate is the highest mortgage rate you can renew at before monthly cash flow drops below zero. It depends on three things:

• What is left over for the mortgage: rent minus operating expenses (tax, insurance, maintenance, capital reserve, vacancy).
• Your balance at renewal: lower than what you started with, thanks to five years of principal paydown.
• Your remaining amortization: shorter than when you started, which pushes the payment up.

At renewal your payment is recalculated on the remaining balance, over the remaining years, at the new rate. The break-even rate is simply the rate where that new payment exactly equals what the property has left over for the mortgage.

A Worked Example: A Hamilton Single-Family Rental

This is the property from the video: one tenant, positive cash flow, a healthy score. On paper it is a good rental.

Rent of $3,050 minus $900 of expenses leaves $2,150 a month for the mortgage. The renewal payment on $376,000 over 20 years reaches $2,150 at roughly 3.37%.

What Happens Above and Below It

Here is the same property at four renewal rates, each with a 20-year remaining amortization.

At 3% the property still clears $60 a month. Just past the break-even rate, at 3.5%, it slips to -$34. At 4% the payment is up $361 and cash flow is -$130 a month. At 5% it is -$329 a month, close to $4,000 a year out of pocket on a house that was making money before renewal.

Watch the DSCR column too. Below 1.0, rent no longer covers the mortgage, and that matters the next time you want to refinance or buy, because lenders look at exactly this ratio. More on that in what counts as a good DSCR.

If Your Offer Is Above Break-Even

Being above your break-even rate is not automatically a reason to sell. It is a reason to look at your options with real numbers.

Rent growth closes the gap over time. With 2% annual rent growth, the 4% scenario goes from -$130 in year one to -$69 in year two and -$7 in year three. That is a couple of years of topping up, not a permanent loss.

An amortization reset lowers the payment. At 4%, resetting to 25 years brings cash flow to +$164 a month. Resetting to 30 years brings it to +$353 and DSCR back to 1.20. The trade-off is more total interest and slower equity build.

Stress test the result. This property at a 4% renewal fails a 6% stress test. If rates climb another two points at the next renewal, the numbers break again, so keep a cash buffer and be careful about stretching on your next purchase.

Find Your Own Break-Even Rate

Rental Analyst calculates your break-even renewal rate from your actual balance, remaining amortization, rent and expenses, and shows it next to your renewal date. The rate scenario table, rent growth preview, amortization reset and stress test in this post all come from the same screen.

This post is for informational purposes only and does not constitute financial, legal, mortgage, or tax advice. The example uses illustrative figures for a sample property. Rates, terms and amortization options vary by lender. Confirm your options with your lender before making any decision.