Home owners facing mortgage renewals in the next few months should brace themselves for higher rates from lenders, including some of the big six banks..Canadian Mortgage Trends (CMT) reports BMO, CIBC and RBC increased some posted fixed mortgage rates over the past week, with the hikes targetting shorter terms. BMO increased its one- to three-year fixed terms by 10 to 65 basis points (bps) with RBC hiking its one- to three-year fixed terms by 10 bps..The Canada Mortgage and Housing Corporation (CMHC) says shorter-term mortgages increased in popularity for home buyers and those renewing, reported, as of January, 36% of new mortgages had fixed-rate terms of three years or less, while 28% had fixed terms of between three and five years..“Borrowers’ expectations that the policy interest rate will decrease from its 15-year high in the next few years, coupled with minimal rate differences between the different agreement lengths, are driving factors behind this shift,” CMHC said in its Spring 2023 Residential Mortgage Industry report..“On the other hand, longer-term fixed-rate mortgages of five years or longer – traditionally the preferred mortgage product by Canadian borrowers — comprised just 13% of new originations. That’s down from nearly 50% just prior to the pandemic.”.Data from MortgageLogic.news shows five-year fixed terms at most lenders are up an average of .16% for insured mortgages and .1% for uninsured mortgages..Ron Butler of Butler Mortgage told CMT he expects fixed rates to be between 40 bps and 60 bps higher once this latest round of hikes is done..“Concern over the US debt ceiling combined with the recent tiny inflation bump in Canada means bond yields for all terms have soared,” he told CMT. “And bond yields drive fixed mortgage rates.”.The Bank of Canada expressed growing concerns about the ability of households to service debt, especially with mortgage holders facing increases of up to 40% at renewal..“In light of higher borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” reads the Bank’s 2023 Financial System Review. “More households are expected to face financial pressure in the coming years as their mortgages are renewed.”.The bank estimates roughly one-third of mortgages have seen payment increases compared to February 2022, prior to the bank’s rate-hike cycle, adding by the end of 2026 all mortgage holders will have experienced a payment increase..The size of the increase will depend on mortgage type and the previous rate mortgage holders had obtained..Most fixed-rate mortgages will face renewal in 2025-26, with payment increases expected to be 20% to 25%, the bank said..All adjustable-rate borrowers (those whose payments vary as interest rates change) already experienced payment increases, with some seeing their payments surge by more than 50%, said the bank, adding variable-rate mortgage borrowers with static monthly payments, where the amount of the payment going towards interest rises as interest rates increase, will need to increase their payments an average of 40% to maintain their original amortization schedule, assuming a renewal in 2025 or 2026..In its review, the bank says, while the increase in mortgage payments should be manageable for most households, the impact will be more significant for some..“Many will have a buffer to support higher payments thanks to being stress-tested at higher rates when their mortgage was originated,” it said. “For some households, however, the combination of higher debt-servicing ratios, lower home equity and longer amortization periods will reduce household flexibility in the event of added financial stress, such as reduced income.”.The bank also noted “the federal government proposed a guideline to ensure financial institutions explore mortgage relief options to help Canadians manage the increase in mortgage rates.”
Home owners facing mortgage renewals in the next few months should brace themselves for higher rates from lenders, including some of the big six banks..Canadian Mortgage Trends (CMT) reports BMO, CIBC and RBC increased some posted fixed mortgage rates over the past week, with the hikes targetting shorter terms. BMO increased its one- to three-year fixed terms by 10 to 65 basis points (bps) with RBC hiking its one- to three-year fixed terms by 10 bps..The Canada Mortgage and Housing Corporation (CMHC) says shorter-term mortgages increased in popularity for home buyers and those renewing, reported, as of January, 36% of new mortgages had fixed-rate terms of three years or less, while 28% had fixed terms of between three and five years..“Borrowers’ expectations that the policy interest rate will decrease from its 15-year high in the next few years, coupled with minimal rate differences between the different agreement lengths, are driving factors behind this shift,” CMHC said in its Spring 2023 Residential Mortgage Industry report..“On the other hand, longer-term fixed-rate mortgages of five years or longer – traditionally the preferred mortgage product by Canadian borrowers — comprised just 13% of new originations. That’s down from nearly 50% just prior to the pandemic.”.Data from MortgageLogic.news shows five-year fixed terms at most lenders are up an average of .16% for insured mortgages and .1% for uninsured mortgages..Ron Butler of Butler Mortgage told CMT he expects fixed rates to be between 40 bps and 60 bps higher once this latest round of hikes is done..“Concern over the US debt ceiling combined with the recent tiny inflation bump in Canada means bond yields for all terms have soared,” he told CMT. “And bond yields drive fixed mortgage rates.”.The Bank of Canada expressed growing concerns about the ability of households to service debt, especially with mortgage holders facing increases of up to 40% at renewal..“In light of higher borrowing costs, the Bank of Canada is more concerned than it was last year about the ability of households to service their debt,” reads the Bank’s 2023 Financial System Review. “More households are expected to face financial pressure in the coming years as their mortgages are renewed.”.The bank estimates roughly one-third of mortgages have seen payment increases compared to February 2022, prior to the bank’s rate-hike cycle, adding by the end of 2026 all mortgage holders will have experienced a payment increase..The size of the increase will depend on mortgage type and the previous rate mortgage holders had obtained..Most fixed-rate mortgages will face renewal in 2025-26, with payment increases expected to be 20% to 25%, the bank said..All adjustable-rate borrowers (those whose payments vary as interest rates change) already experienced payment increases, with some seeing their payments surge by more than 50%, said the bank, adding variable-rate mortgage borrowers with static monthly payments, where the amount of the payment going towards interest rises as interest rates increase, will need to increase their payments an average of 40% to maintain their original amortization schedule, assuming a renewal in 2025 or 2026..In its review, the bank says, while the increase in mortgage payments should be manageable for most households, the impact will be more significant for some..“Many will have a buffer to support higher payments thanks to being stress-tested at higher rates when their mortgage was originated,” it said. “For some households, however, the combination of higher debt-servicing ratios, lower home equity and longer amortization periods will reduce household flexibility in the event of added financial stress, such as reduced income.”.The bank also noted “the federal government proposed a guideline to ensure financial institutions explore mortgage relief options to help Canadians manage the increase in mortgage rates.”
