mortgage renewal

Canadian Mortgage Renewals: Preparing for Uncertain Interest Rates

Friday Oct 27th, 2023


Recent surveys have revealed that many Canadians are feeling the pressure as their mortgage renewal dates approach, fueled by the series of interest rate hikes implemented by the Bank of Canada since March 2022. As 74% of Canadian mortgage holders currently have fixed-rate mortgages, concerns about the impact of higher interest rates are on the rise. In this article, we will delve into the findings of a Royal LePage survey and explore how Canadians are contemplating various strategies to navigate their upcoming mortgage renewals.

Renewal Timeline

Within the next 18 months, 31% of Canadian mortgagees face renewal deadlines, with 16% renewing within the next year and 15% in the following 12-18 months. This translates to a staggering 3.4 million Canadians with mortgages set to renew by March 2025.

Adapting to Renewal Worries

To combat their renewal jitters, many Canadians are considering alternative mortgage options and cost-cutting measures. 24% of respondents are thinking about extending their mortgage's amortization period, while 23% are contemplating switching to a different lender for a better interest rate. However, it's essential to note that those with uninsured mortgages will have to qualify for the stress test, potentially pushing some borrowers to renew with their existing lenders at higher rates to avoid this challenge. 

Changing Mortgage Types

18% of mortgage holders are pondering the idea of extending their next mortgage term, and 17% are exploring the possibility of downsizing to a smaller property to reduce their mortgage burden. Among those with variable-rate or hybrid mortgages, 40% are planning to switch to a fixed-rate mortgage at renewal.

Navigating Interest Rate Hikes

The Bank of Canada's aggressive interest rate hike campaign has significantly impacted variable-rate mortgage holders. For these borrowers, monthly payments have doubled or even tripled over the last year and a half, leading to financial strain for 76% of them. Higher interest rates have caused 64% of variable-rate mortgage holders to hit their trigger rates, increasing their monthly costs.

Financial Strategies

To cope with rising mortgage payments, 52% of variable-rate or hybrid mortgage holders who have felt financial strain have cut discretionary spending, such as dining out and traveling. Additionally, 47% have reduced their savings contributions, 46% have minimized essential expenses like groceries and utilities, and 40% have dipped into their savings.

Optimism Amid Uncertainty

Despite the challenges, 30% of Canadian mortgage holders express confidence about their upcoming renewals. 55% believe their income can absorb the higher interest rates, and 33% are close to paying off the remainder of their mortgages.

Mortgage Landscape in Canada

A significant majority (80%) of residential mortgage holders use prime lenders, with 94% doing so in Quebec, the highest provincial rate in the country. Only 9% of Canadians use sub-prime or monoline lenders. Nearly half (49%) of mortgage holders have five-year mortgage terms, while 39% amortize their mortgages over 25 years.

As interest rates continue to fluctuate, Canadians are facing critical decisions regarding their mortgage renewals. While many have been financially resilient, preparing for the inevitable increase in borrowing costs is crucial. Whether through extending amortization periods, changing lenders, or switching mortgage types, Canadians are actively exploring options to safeguard their financial well-being amidst an uncertain economic climate.

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