Are homeowners ready for mortgage renewals at higher rates?

Interest rates and borrowing costs may be on the way down in Canada – but with a wave of mortgages coming up for renewal in the coming years, scores of homeowners are still facing the prospect of their monthly payments spiking under a new rate.

For brokers, helping clients who are existing homeowners find a manageable rate upon renewal has been a common challenge throughout the year to date, a trend that’s only likely to intensify looking ahead.

For 2024 and 2025 combined, a total of over $675 billion in mortgage loans will be renewed, according to Canada Mortgage and Housing Corporation (CMHC), a figure equalling nearly 40% of Canada’s overall gross domestic product (GDP).

Should borrowers and market watchers be aware of the possibility of the Canadian economy toppling amid next year’s expected renewals surge?

Speaking to Canadian Mortgage Professional after the Bank of Canada cut its benchmark rate on July 24, Bank of Montreal (BMO) chief economist Doug Porter (pictured top) said some borrower pain is certainly on the way, although it’s likely to be contained and manageable.

The renewal environment in 2025, he said, is likely to be a challenging one. “It’s not going to be easy for people whose mortgage is coming up next year, almost regardless of what the Bank of Canada does,” he said. “Unless there’s something horrible that happens to the economy, people who took out mortgages in the pandemic are going to be looking at rate hikes. They’re going to be looking at higher payments.”

Still, the good news is that few, if any, borrowers are likely to be caught by surprise by the prospect of paying a higher mortgage rate upon renewal. The coming wave has been extensively discussed throughout this year and last, not least by the Bank of Canada.

That means borrowers will already have been exploring their options in many cases, according to Porter. “It’s not going to be a shock to anyone,” he said. “They’ve had a long time to prepare for that reality and I think they’re going to have options. Rates will be coming down. They might only have to lock in for a year or two and look forward to somewhat lower rates a bit further out.”

CMP

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