Renewal jitters: Canadians concerned about upcoming mortgage renewals consider extending their amortization periods, switching lenders

74% of mortgagees with lending agreements set to renew within the next 18 months report feeling concerned about higher interest rates

Highlights:

• 16% of current mortgagees will be renewing their lending agreements within the next 12 months, while another 15% will be renewing in 12 to 18 months
• Almost three-quarters (74%) of Canadian mortgage holders currently have a fixed-rate mortgage; 20% have a variable-rate mortgage
• 40% of variable-rate or hybrid mortgage holders concerned about their upcoming renewal say they plan to switch to a fixed rate
• 64% of variable-rate or hybrid mortgage holders say that higher interest rates have caused their mortgage payment to hit its trigger rate and thus increased their monthly cost
• 76% of variable-rate or hybrid mortgage holders say that higher interest rates have caused financial strain on their household, causing them to reduce spending and dip into savings

TORONTO, October 26, 2023 – According to a recent Royal LePage survey conducted by Nanos,^[1] 74 per cent of Canadians with a residential mortgage set to renew within the next 18 months say they are concerned about the renewal, in light of the series of interest rate hikes made by the Bank of Canada since March of 2022. Thirty-one per cent of all mortgagees in Canada say their lending agreement is set to renew within the next year and a half (16% within 12 months and 15% in 12-18 months). That means 3.4 million Canadians have a mortgage that is set to renew by March of 2025.^[2]

When asked about their impending mortgage renewals, many Canadians say they are considering changing the type of mortgage product they sign or increasing the amortization period, along with an array of cost-cutting measures. Twenty-four per cent of residential mortgage holders who are concerned about their renewal say they have considered extending their mortgage’s amortization period, while 23 per cent have contemplated switching to another lender in order to secure a better rate. If switching lenders, however, applicants with uninsured mortgages must qualify for the stress test, which is the higher of 5.25 per cent or the lending rate plus two per cent. This additional challenge may cause some borrowers to renew with their current lender at a higher rate in order to avoid the stress test.

Eighteen per cent of mortgage holders have thought about extending their next mortgage term, and 17 per cent have considered selling their home and buying a smaller property in order to reduce the size of their mortgage. Respondents were able to select more than one answer. Among those who currently hold a variable-rate or hybrid mortgage and reported feeling concerned, 40 per cent say they plan to switch to a fixed-rate mortgage upon renewal.

“Some Canadians with variable-rate mortgages have seen their monthly payments double or even triple over the last year and half, due to the Bank of Canada’s aggressive interest rate hike campaign aimed at tamping down high inflation. Those locked in to a fixed-rate mortgage, which most are, have been protected from those increases, at least for a short time,” said Karen Yolevski, chief operating officer, Royal LePage Real Estate Services Ltd. “While the central bank’s key lending rate is expected to come down in the medium term, the likelihood that we will return to rock-bottom rates of less than one per cent is very low. Upon renewal, fixed-rate mortgage holders will be faced with a new reality – higher monthly payments.”

Thirty per cent of Canadian mortgage holders say that they are not concerned about their upcoming renewal. More than half of them (55%) say they are confident that their income will allow them to absorb the higher interest rate, and another 33 per cent say they are close to paying off the remainder of their mortgage.

Profile of the Canadian mortgage holder 

According to the survey, 80 per cent of residential mortgage holders say that they use a prime lender for their current mortgage (TD, RBC, Scotiabank, CIBC, BMO, National Bank, HSBC, Desjardins). In Quebec, this figure rises to 94 per cent, the highest provincial rate in the country. Meanwhile, nine per cent of Canadian mortgage holders use sub-prime or monoline lenders.

Nearly half of all mortgage holders (49%) have a five-year mortgage term, and 39 per cent have their mortgage amortized over 25 years. Currently, 74 per cent of mortgaged homeowners have a fixed-rate mortgage (open or closed); 20 per cent have a variable-rate mortgage (open or closed); and less than one per cent (0.8%) have a hybrid mortgage (open or closed).

“Many Canadians today are facing a mortgage renewal at a significantly higher rate than they’re used to, and this will continue to be the case in the coming years as more loans mature,” said Yolevski. “Canadians generally tend to err on the side of caution when it comes to their finances, and we believe this has served them well. Our financial institutions are well positioned to support consumers through one of the largest and most important purchases of their life.”

Canada’s strict lending standards require a 20-per-cent down payment, without which borrowers require mortgage insurance, an additional monthly expense. This is known as a high-ratio mortgage. Just 27 per cent of residential mortgage holders say they have a high-ratio mortgage.

Higher mortgage costs putting pressure on variable-rate, hybrid mortgage holders

Since March of 2022, the Bank of Canada has imposed an unprecedented number of rate hikes, taking interest rates from historic lows to a two-decade high. The central bank’s key lending rate currently sits at 5.0 per cent – the highest level since 2001. For variable-rate or hybrid mortgagees, whose payments fluctuate with changing interest rates, this has resulted in a steep rise in monthly mortgage costs.

Of those who have a variable-rate or hybrid mortgage, 64 per cent say that higher interest rates have caused their mortgage payment to hit its trigger rate – when the mortgage payment no longer covers the interest portion – and have subsequently caused their monthly payments to increase.

“There is no doubt that Canadians’ financial stability has been put to the test over the last few years. In addition to home prices skyrocketing in 2021 and the start of 2022 – followed by interest rate increases that have caused monthly mortgage payments to rise by hundreds, if not thousands, of dollars – the cost of everyday essentials like food and fuel have also surged,” said Yolevski. “Canada’s strong employment rate and the rigorous lending practices of our major banks continue to ensure that a vast majority of households are able to navigate these financial challenges without having to sell their homes.”

According to the Canadian Bankers Association, only 15 out of every 10,000 mortgaged households in Canada are more than 90 days behind on their payments as of August 2023, near the lowest level in several decades.^[3]

A sharp increase to their monthly mortgage payments has placed pressure on the financial health of many variable-rate and hybrid mortgage holders. Of this segment of mortgage holders, 42 per cent say that higher interest rates have put a major financial strain on their household, while another 34 per cent say they have imposed minor financial strain.

In order to cope with higher mortgage payments, 52 per cent of variable-rate or hybrid mortgage holders who have felt some financial strain due to rising rates say they have decreased their discretionary spending, such as eating out or traveling; 47 per cent say they have reduced how much money they put into savings; 46 per cent say they have reduced essential expenses where they can, such as groceries, gas and utilities; and 40 per cent have dipped into savings. Respondents were able to select more than one answer.

“Canadians have proven they will do what it takes to ensure their financial obligations are met, even if it means making concessions in other areas,” added Yolevski. “While further interest rate increases are not entirely off the table, given inflation remains higher than the Bank of Canada’s two per cent target rate, it is likely that we’ve reached the peak, or near to it. In the coming year, we will likely see rates come down slightly, offering families some financial relief.”

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey 

Regional Insights

Ontario

In the province of Ontario, 35 per cent of residential mortgage holders will be renewing their lending agreement within the next year and a half (21% within 12 months and 15% in 12-18 months). Of them, 74 per cent say they are concerned about their upcoming renewal.

“Many homeowners are concerned about their upcoming mortgage renewal. Banks are aware of this apprehension, and are preparing for many Canadians to shorten their next mortgage term or negotiate other changes,” said Shawn Ramautor, sales representative, Royal LePage Wolle Realty. “Homeowners are considering all options on the table, including lengthening their amortization period in order to lower their monthly payments.”

According to the survey, 81 per cent of mortgagees in the province obtained their mortgage from a prime lender; 73 per cent have a fixed-rate mortgage (open or closed); and 21 per cent have a variable-rate mortgage (open or closed).

Forty-six per cent of variable-rate or hybrid mortgage holders in Ontario say that higher interest rates have put major financial strain on their household; 30 per cent say that increased rates have imposed minor financial strain. In order to cope with higher mortgage payments, 54 per cent of them have decreased their discretionary spending. Sixty-seven per cent of variable-rate or hybrid mortgagees in the province say that higher interest rates have caused their mortgage payment to hit its trigger rate and subsequently caused an increase to their monthly payments.

“Homeowners in Ontario with a fixed-rate mortgage have been lucky enough to dodge the interest rate increases of the last year and a half, but most understand that the time will come when they will renew their mortgage in a very different borrowing environment – a more expensive one. As such, mortgage holders are preparing in advance for this inevitable increase, shopping around for the best rate and weighing all their options,” added Ramautor. “Many buyers are still waiting on the sidelines, and will likely re-enter the market in late 2024, when rates are expected to start decreasing.”

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey

Quebec

In the province of Quebec, 28 per cent of residential mortgage holders will be renewing their lending agreement within the next 18 months (13% within 12 months and 15% in 12-18 months). Of them, 79 per cent say they are concerned about their upcoming renewal.

“Variable-rate mortgage holders, who represent about one in five Quebecers today, are more conscious than ever about interest rate fluctuations since the Bank of Canada began its aggressive campaign to reduce inflation,” said Martin Philippe, residential and commercial real estate broker, Royal LePage Patrimoine in Repentigny. “While the vast majority of homeowners currently hold fixed-rate mortgages, many will have to adapt to much higher borrowing costs over the next year and a half. Looking ahead, some homeowners or potential buyers are hopeful that rates will start to decline towards the end of 2024, but it seems that the days of ultra-low rates are a thing of the past.”

According to the survey, 94 per cent of mortgagees in the province obtained their mortgage from a prime lender, the highest rate in the country. Seventy-five per cent have a fixed-rate mortgage (open or closed), and 20 per cent have a variable-rate mortgage (open or closed).

Thirty-three per cent of variable-rate or hybrid mortgage holders in Quebec say that higher interest rates have put major financial strain on their household; 42 per cent say that increased rates have imposed minor financial strain. In order to cope with higher mortgage payments, 45 per cent of them have decreased discretionary spending. Sixty per cent of variable-rate or hybrid mortgagees in the province say that higher interest rates have caused their mortgage payment to hit its trigger rate and subsequently caused an increase to their monthly payments.

“In today’s higher-interest-rate environment, I recommend that homeowners who are concerned about their mortgage renewal get in touch with their lender to ask about possible solutions,” suggested Philippe. “Financial institutions are aware of current challenges and can propose a number of options. The good news is that we’ve probably reached, or almost reached, the peak of interest rate hikes, which will enable households to plan their budgets more easily in the months ahead.”

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey 

British Columbia

In the province of British Columbia, 30 per cent of residential mortgage holders will be renewing their lending agreement within the next 18 months (12% within 12 months and 18% in 12-18 months).

“There is growing concern among homeowners who are approaching their mortgage renewal date, largely due to rising interest rates and the increasing cost of living,” said Adil Dinani, sales representative, Royal LePage West Real Estate Services. “Those with a fixed-rate mortgage have benefitted from the stability of consistent payments despite rising rates. However, they are bracing for a certain increase upon renewal. Most variable-rate and hybrid loan holders are anxious about being able to keep up with their payments, which have already seen a sharp rise in the past 18 months. Consequently, people have become more cautious, and are assessing their household finances to determine if they can sustain further rate hikes.”

According to the survey, 75 per cent of mortgagees in the province obtained their mortgage from a prime lender; 67 per cent have a fixed-rate mortgage (open or closed); and 26 per cent have a variable-rate mortgage (open or closed).

Forty-six per cent of variable-rate or hybrid mortgage holders in British Columbia say that higher interest rates have put major financial strain on their household; 42 per cent say that increased rates have imposed minor financial strain. In order to cope with higher mortgage payments, 57 per cent of them have reduced how much money they put into savings. Seventy-four per cent of variable-rate or hybrid mortgagees in the province say that higher interest rates have caused their mortgage payment to hit its trigger rate and subsequently caused an increase to their monthly payments.

“While mortgage holders may be concerned about their upcoming renewal, many are already planning ahead for rate increases by shopping around for competitive rates and making lifestyle adjustments to offset increased expenses,” added Dinani. “Mortgagees and potential buyers should always exercise prudence when it comes to their finances, and have a strong understanding of what they are able to afford before making a purchase or renewing a loan.”

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey 

Prairies

In the province of Alberta, 27 per cent of residential mortgage holders will be renewing their lending agreement within the next 18 months (12% within 12 months and 15% in 12-18 months).

“Many homeowners are worried about their upcoming mortgage renewal, though this anxiety is higher among those in the lower income brackets and households who are over-leveraged. Whether a mortgage holder will switch to a variable- or a fixed-rate product upon renewal depends entirely on their financial situation and risk tolerance,” said John Hripko, sales representative, Royal LePage Benchmark in Calgary. “Most people tend to be risk averse when it comes to their finances. Even if there is a chance rates will fall by 2025, homeowners are showing a preference for the predictability of a fixed-rate mortgage. When speaking with your mortgage professional, it is important to discuss your tolerance for risk, and your ability to absorb an increase in interest rates should they climb even higher.”

According to the survey, 65 per cent of mortgagees in Alberta obtained their mortgage from a prime lender; 81 per cent have a fixed-rate mortgage (open or closed); and 16 per cent have a variable-rate mortgage (open or closed).

In the provinces of Saskatchewan and Manitoba, 30 per cent of residential mortgage holders will be renewing their lending agreement within the next 18 months (14% within 12 months and 16% in 12-18 months).

“With average home prices significantly lower here, rising interest rates have had less of an impact on real estate markets in the Prairies, compared to major cities and urban centres elsewhere in Canada. Still, a material increase in a monthly mortgage payment can put pressure on any family’s financial health,” said Chris Pennycook, sales representative, Royal LePage Dynamic Real Estate in Winnipeg. “The best thing anyone can do – whether signing your first mortgage or renewing an existing loan – is educate yourself. Consult a professional, decide if you are someone who prefers flexibility or security, and shop around for a deal that suits your needs. Analyze your own financial situation and weigh your options well in advance.”

According to the survey, 58 per cent of mortgagees in Saskatchewan and Manitoba obtained their mortgage from a prime lender; 77 per cent have a fixed-rate mortgage (open or closed); and 11 per cent have a variable-rate mortgage (open or closed).

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey

Atlantic Canada

In Atlantic Canada, 29 per cent of residential mortgage holders will be renewing their lending agreement within the next 18 months (17% within 12 months and 12% in 12-18 months).

“Anxiety about mortgage renewals is not just reserved for current homeowners – many buyers are thinking further ahead when shopping for a home, and are mindful about their eventual renewal four to five years down the road,” said Tanya Colbo, sales representative, Royal LePage Atlantic. “Having watched record-low borrowing rates quickly climb over the past year and a half, a lot more people have come to appreciate the benefits of a fixed-rate mortgage. When working with clients these days, I am seeing more pre-approval letters for fixed-rate financing.”

According to the survey, 82 per cent of mortgagees in Atlantic Canada obtained their mortgage from a prime lender; 81 per cent have a fixed-rate mortgage (open or closed); and 14 per cent have a variable-rate mortgage (open or closed).

“More homebuyers are also shopping significantly below their pre-approved limit in order to accommodate a potential increase in interest rates at renewal,” said Colbo. “With the rising cost of living, it is wise to give yourself some extra wiggle room to avoid feeling strapped by your monthly household expenses.”

2023 Mortgage Renewal Survey Chart: rlp.ca/table_2023mortgagerenewalsurvey

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About the Survey

Nanos conducted an online representative non-probability panel survey of 2,004 Canadians, including 933 current residential mortgage holders between the ages of 27 and 75, from September 8th to 14th, 2023. The sample is geographically stratified to be representative of Canada. No margin of error applies to this research.

About Royal LePage

Serving Canadians since 1913, Royal LePage is the country’s leading provider of services to real estate brokerages, with a network of approximately 20,000 real estate professionals in over 670 locations nationwide. Royal LePage is the only Canadian real estate company to have its own charitable foundation, the Royal LePage Shelter Foundation, which has been dedicated to supporting women’s shelters and domestic violence prevention programs for 25 years. Royal LePage is a Bridgemarq Real Estate Services Inc. company, a TSX-listed corporation trading under the symbol TSX:BRE. For more information, please visit www.royallepage.ca.

For further information, please contact:

Stephanie Matthias
North Strategic on behalf of Royal LePage
stephanie.matthias@northstrategic.com
(416) 802-1612

 

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^[1] Nanos conducted an online representative non-probability panel survey of 2,004 Canadians, including 933 current residential mortgage holders between the ages of 27 to 75, from September 8th to 14th, 2023. The sample is geographically stratified to be representative of Canada. No margin of error applies to this research.

^[2] Based on Statistics Canada. Table 17-10-0005-01 Population estimates on July 1st, by age and sex for Canadians aged 26-74 in 2022 and survey results indicating 45% of respondents currently hold a residential mortgage. 

^[3] Number of residential mortgages in arrears as of August 2023, Canadian Bankers Association, October 10, 2023