Mortgage and Insurance Blogs
Why Insurance Costs Are Changing in Canada and What It Means for Your Mortgage
December 23, 2025 | Posted by: Sharon Black
Did you know that changes to your home insurance policy can directly affect your mortgage approval, renewal, or refinance? Many Canadians assume insurance and mortgages are handled separately, but lenders see them as closely connected. Rising insurance premiums, coverage exclusions, and higher deductibles are now influencing monthly housing costs, debt ratios, and even lender risk decisions. Understanding what is happening with insurance today can help you protect both your home and your mortgage strategy.
Why Insurance and Mortgages Are More Connected Than Ever
Over the past few years, Canadian homeowners have faced higher interest rates, tighter lending rules, and rising living costs. At the same time, insurance premiums for homes and properties have also been changing. These two financial products, your mortgage and your insurance, now overlap more than many people realize.
From a lender’s perspective, insurance protects the asset that secures the mortgage. From a homeowner’s perspective, insurance premiums affect monthly affordability and long-term ownership costs. When insurance costs rise, the ripple effect often shows up during mortgage renewals, refinances, and new purchases.
As a team that works with homeowners every day, we are seeing more conversations where insurance affordability, coverage gaps, and lender requirements intersect with mortgage planning. If you are approaching a renewal, you may also find this helpful: Mortgage Renewals.
What Is Driving Insurance Cost Changes in Canada?
Rising Repair and Replacement Costs
One of the biggest drivers behind insurance premium changes is the cost to repair or rebuild homes. Materials, skilled labour, and supply chain pressures have increased replacement costs across Canada. When the cost to rebuild a home rises, insurers must adjust coverage limits, which often results in higher premiums.
This matters for mortgages because lenders require sufficient replacement coverage. Underinsured properties can delay approvals or require policy updates before funding.
Extreme Weather and Property Risk
Flooding, wildfires, wind damage, and severe storms are no longer considered rare events in many regions. Insurers now assess property risk more carefully based on location, history, and exposure. Homes in higher-risk zones may face increased premiums, higher deductibles, or coverage limitations.
When homeowners renew or refinance, lenders review insurance details closely. Any exclusions or reduced coverage may trigger lender questions or conditions.
Auto Insurance and Household Debt Ratios
Auto insurance is another factor that quietly affects mortgage affordability. For many households, higher auto premiums increase monthly obligations. Lenders consider total monthly expenses when assessing debt service ratios.
Even though auto insurance is not tied directly to the property, higher household insurance costs can reduce borrowing capacity.
Insurance Market Cycles
Insurance operates in cycles, similar to lending. Periods of higher claims and increased costs often lead to tighter underwriting and higher pricing. These shifts impact policy availability, discounts, and renewal terms.
For homeowners nearing a mortgage renewal or refinance, unexpected insurance changes can affect overall financial planning.
How Insurance Impacts Mortgage Approvals and Renewals
Proof of Insurance Is Not Optional
Mortgage lenders require proof of active home insurance before funding. Coverage must meet lender requirements, including replacement value and specific perils. If your policy does not align with these requirements, the mortgage process can stall.
If you want a simple starting point for questions you might be asked in the process, visit: Frequently Asked Questions.
Premium Increases Affect Affordability
Even modest insurance increases can push debt ratios higher. This matters most during refinancing, when homeowners are requalified under current lending rules.
In some cases, adjusting coverage or deductibles strategically can help balance affordability without compromising lender requirements. If you are considering refinancing, this related post may help you think through timing and strategy: Is Now the Right Time to Refinance Your Mortgage.
Gaps in Coverage Create Red Flags
Certain exclusions, such as limited water damage or aging roof restrictions, can raise concerns for lenders. These issues may need to be addressed before approval, especially for higher loan-to-value transactions.
Stats That Help Put This Into Perspective
Across Canada, insurance providers and lenders are responding to similar pressures. Industry-level reporting from national insurance organizations has highlighted that weather-related losses have become a more material factor over time, and that rebuilding and claim costs have increased alongside materials and labour pressures. These realities affect how policies are priced and how coverage is assessed.
At the same time, lenders continue to emphasize insured properties as a core risk management requirement. Replacement costs, not market value, are increasingly central to insurance evaluations.
For homeowners, this means insurance decisions today can directly influence mortgage flexibility tomorrow.
What Homeowners Can Do Right Now
Review Insurance Before Mortgage Renewals
One of the most effective steps homeowners can take is reviewing insurance coverage well before a mortgage renewal or refinance. Waiting until the last minute often limits options.
Align Coverage With Property Value and Lender Expectations
Ensuring your home is properly insured for replacement value helps avoid delays and underwriting issues. This includes reviewing endorsements related to water damage, liability, and additional structures.
Bundle Strategically, Not Automatically
Bundling home and auto insurance can reduce costs, but it is still important to review coverage details. The lowest premium is not always the best fit for mortgage requirements.
Keep Documentation Accessible
Lenders may request updated insurance documents during the mortgage process. Having clear, current policies on hand can speed up approvals.
If you would like to speak with our team about insurance needs that overlap with homeownership and mortgage planning, start here: Insurance Services or contact us directly here: Contact.
Top 10 FAQs About Insurance Costs and Mortgages in Canada
1. Can rising home insurance premiums affect my mortgage approval?
Yes. Higher premiums can impact affordability and lender-required debt ratios.
2. Do lenders check my insurance coverage details?
Yes. Lenders review coverage limits, replacement value, and exclusions.
3. Can I change insurance providers during a mortgage term?
Yes, as long as lender requirements are met and proof is provided.
4. Does underinsuring my home save money?
It may lower premiums but can cause mortgage issues and financial risk.
5. Are older homes harder to insure for mortgage purposes?
Sometimes. Age, wiring, plumbing, and roofing can affect coverage terms.
6. Does auto insurance impact my mortgage?
Indirectly. Higher household expenses affect debt service calculations.
7. Should I review insurance before refinancing?
Yes. It can prevent delays and help optimize borrowing capacity.
8. Are flood or water exclusions a concern for lenders?
They can be, especially in higher-risk areas.
9. Does bundling insurance help mortgage affordability?
It can, if coverage remains adequate.
10. Who should I speak with first, my broker or insurer?
Ideally both. Coordination leads to better outcomes.
Why a Coordinated Mortgage and Insurance Strategy Matters
Insurance and mortgages should not be managed in isolation. When these two areas work together, homeowners gain clarity, stability, and confidence. A well-aligned strategy reduces surprises, improves approval outcomes, and supports long-term financial health.
As a team, we believe education is the foundation of smart decision-making. Understanding how insurance trends affect mortgages allows homeowners to plan ahead rather than react under pressure.
Final Thoughts
Insurance costs in Canada are changing, and those changes matter far beyond the policy itself. For homeowners, insurance is not just protection, it is a key component of mortgage success.
By staying informed, reviewing coverage proactively, and aligning insurance decisions with mortgage goals, Canadians can navigate today’s housing landscape with confidence.
If you are approaching a mortgage renewal, refinance, or purchase, now is the right time to look at both sides of the equation.
