Navigating the Impact of Rising Interest Rates on Canadian Mortgages
In the coming years, a substantial number of Canadian borrowers are poised to feel the effects of changing economic landscapes. Analysts project that approximately $251 billion of mortgages will enter the renewal phase in 2024, followed by an even more significant figure of $352 billion in 2025.
According to December data from the Bank of Canada, a noteworthy 80% of all mortgages outstanding as of February 2022 are expected to experience a payment increase by 2024. The bank anticipates that nearly all remaining mortgages will undergo their renewal cycle by 2026. Depending on the trajectory of interest rates, borrowers in this scenario may find themselves contending with substantially higher payments, warns the Bank.
The report highlights the substantial shift in interest rates since March 2022, following a period of historically low rates in the initial years of the COVID-19 pandemic. This rapid increase poses challenges for many mortgage holders who are currently grappling with significantly higher payments. The magnitude of this payment hike depends on the individual features of each mortgage and the evolving landscape of interest rates.
As Canadian borrowers navigate this changing financial terrain, understanding the intricate details of their mortgage agreements and staying informed about the trajectory of interest rates becomes crucial in managing potential financial adjustments.
Navigating the Impact of Higher Interest Rates at your Mortgage Renewal
Are you one of the more than 80% of Canadian mortgage holders looking at a mortgage term renewal this year? As your current mortgage term comes to an end, you will need to renew your mortgage for a new term, provided you still have a balance owing. This is the time to review your financial situation, and the terms and features of your current mortgage and what your lender has to offer. It may no longer be the best fit for you and your goals.
It is no secret in mortgage lending that renewal rates are not as good as “new” mortgage rates. This means that the rate your bank will offer at renewal, is likely going to be higher than the best rates they offer on purchase transactions. Switching to a new lender could result in a better rate and better terms. This is a prime example of why it’s in your best interest to speak to a mortgage professional to learn your options.
At term maturity you have various options and changes to consider:
- This is the penalty free time to look at switching to new product, term length, and/or a new lender.
- Perhaps consolidating other higher interest debt will alleviate the tightened cash flow concerns.
- Consider speaking with a mortgage professional outside of your current lender for advice and options.
- Borrowers can start the renewal process up to 120 days ahead of their renewal date but can consult with a professional anytime.
*Some lenders are now requiring current mortgage holders to re-qualify at renewal with the current stress-test rates (2% above your new contract rate). The exception to this is for insured mortgage holders, they will be requalified at the contract rate. This is also the case if you are looking to switch to a new lender. It can be a concerning time if this is the possibility of what you may be facing. A knowledgeable mortgage professional can guide you through the process and help find you the best solution for your financial needs.
As an experienced Mortgage Agent, it would be my privilege to discuss your mortgage with you and help you navigate your renewal process. I can be reached at 519-802-2865 or by email at julie@juliehenwoodhome.ca.