If your home is now worth less than your mortgage, you’re dealing with negative equity—also called an underwater mortgage. This is an issue many GTA homeowners are facing after buying near the peak in 2021 or 2022. In this guide, I’ll walk you through your real options if you find yourself underwater on your mortgage in the GTA. By understanding these paths, you’ll be able to make more confident decisions about your next steps.

What Does It Mean to Have an Underwater Mortgage?

Being underwater means you owe more on your mortgage than your home could sell for today. For example, if your mortgage balance is $550,000 and your current home value is $500,000, you’re $50,000 underwater. This often happens when prices drop right after you buy, especially with a small down payment or in a volatile market cycle. Many GTA homeowners who purchased at the market’s peak are seeing this now. Negative equity can be stressful, but it’s not a dead end. Let’s take a look at four main options for handling negative equity, plus some important local context.

Option 1: Refinancing and Renewal Strategies

Refinancing when you’re underwater is rarely straightforward. Most lenders will not do a traditional refinance if your loan-to-value is 100% or more. But mortgage renewal gives you a couple of levers to pull. At renewal, lenders may offer to stretch your amortization, which could lower your monthly payments, even if it means paying more interest over time.

If you try to switch to a new lender at renewal, be aware you’ll usually need to re-qualify under the federal stress test—even if your payments are up to date. With lower home values, re-qualifying can be difficult. Renewing with your existing lender is usually easier and doesn’t require another stress test.

In 2025, a new rule will allow insured refinances, but only to fund a legal secondary suite like a basement apartment. This option still depends on your loan-to-value. If you’re underwater, you’ll usually be ineligible, but some homeowners with a small equity gap might benefit. It’s still smart to talk to a knowledgeable mortgage broker who can review renewal options, stretch amortizations, and strategize which route makes sense for you. For more on local renewal risks and strategies, see GTA Mortgage Renewal Crisis: What Homeowners Need to Know.

Option 2: Stay Put and Rebuild Equity

If your payments are affordable, staying in your home and working down the principal can be the safest approach. As you make regular payments, a portion goes toward the principal, shrinking the gap between what you owe and your home’s current value. History shows that markets like the GTA are cyclical. Prices have dropped before, then recovered—sometimes faster than you’d expect, especially compared to smaller Canadian cities.

Making small lump sum payments, if you can, can help you regain positive equity quicker. Adding a legal rental suite, like a basement apartment, may also improve cash flow while the market recovers. But remember—this helps with monthly payments; it doesn’t create instant equity overnight. Lenders still look at your overall loan-to-value, even with added rental income.

Option 3: Selling With Your Lender’s Approval

If holding the property isn’t realistic—maybe because of job changes, life events, or untenable payments—you might consider a lender-approved sale. In the U.S., this is called a short sale. In Ontario and the GTA, the concept is similar but less common. The lender must agree to a sale for less than what you owe.

This option is a structured exit that can help avoid foreclosure or power of sale, which are more damaging to your credit. But be aware that, in Ontario, you could still be on the hook for any shortfall after the home sells. Before listing, always speak to a real estate lawyer about deficiency rules in the province.

Each case is unique, and lenders will evaluate your situation individually. Knowing local laws and your specific mortgage details is important before moving ahead.

Option 4: Consumer Proposal or Bankruptcy—Last Resorts

When debts become overwhelming, there are formal options like a consumer proposal or bankruptcy. A consumer proposal lets you negotiate a reduced settlement with unsecured lenders, potentially freeing up more cash to continue paying your mortgage. Bankruptcy is more severe and impacts your credit for years.

If you’re considering either, work with a licensed insolvency trustee. They’ll help clarify what you can protect and what you may risk losing—especially your home. Both options are for true emergencies, not first steps.

Important Underwater Mortgage Questions—Answered

When should I contact my lender if I’m underwater?

Reach out before missing any payments. Early, honest conversations give you more options. Waiting until after a missed payment can limit your choices and damage goodwill.

Will adding a rental suite solve my negative equity?

Not entirely. It can help with cash flow, but doesn’t erase negative equity if your home’s value is still below your mortgage.

What happens if I need to move soon?

If the market doesn’t recover before you need to sell, explore lender-approved sales, and get legal advice about responsible for any shortfalls.

How to Decide Which Underwater Mortgage Option Is Right in the GTA?

Think about three main factors: Can you afford the current or future payments? Is your mortgage renewal coming up soon? Do you need to move in the next year or can you wait?

• If payments are affordable and your timeline is flexible, consider staying put and making extra principal payments.
• If payments are tight or renewal is approaching, talk to your lender about extending amortization or adjusting rates now.
• If you must sell and are underwater, seek lender approval and legal advice immediately.
• If you have heavy unsecured debts, consult a licensed trustee for a consumer proposal to stabilize your finances.

Above all, doing nothing is the worst option—get in front of the problem while your choices are widest.

Your Next Steps for GTA Underwater Mortgage Options

If your home is underwater in the GTA, you are not alone. The best thing you can do is face the situation early and make a plan. I work with homeowners all over the GTA and can connect you with trusted mortgage brokers and legal experts if needed. If you are approaching renewal or want to know what your home could sell for, use this free home valuation tool or talk strategy for your unique scenario.

Want more in-depth strategies? Check out this GTA mortgage renewal guide or tips on saving at renewal in the GTA.

Still unsure which path to take? Book a call to talk through your options in the current GTA market.

As a GTA real estate agent, I’m here to guide you through tough decisions and make sure you know every path available—whether you stay, sell, or restructure your mortgage.

Key topics: underwater mortgage options gta, gta real estate, negative equity, mortgage renewal, selling in a slow market, toronto real estate