RLP report reveals fears of 74% of mortgage holders facing renewals within 18 months
Stores may be full of pumpkins and ghost costumes, but for millions of Canadians the fear they face is real and likely to stay with them for months.
A new report conducted by Nanos for Royal LePage reveals that the 3.4 million homeowners whose loans are due to renewal by March 2025 are concerned and that’s not surprising given that interest rates remaining elevated and will probably be that way until the second half of 2024 at the earliest.
Almost three quarters of the 31% of homeowners with a mortgage who face renewals in the next 18 months said that they are concerned, 20% of respondents have a variable rate mortgage.
“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.
Renewal options
It’s likely that many mortgage holders will change the terms of their loan, changing their long-term financial goals in the process. Around one quarter are thinking of extending the amortization period.
Another quarter of poll participants with renewals ahead are considering switching lender for a better deal, but this would trigger the stress test - the higher of 5.25% or the lending rate plus 2% - which may not be achievable, forcing borrowers to remain with their current lender.
Eighteen per cent of mortgage holders have thought about extending their next mortgage term, and 17% have considered selling their home and buying a smaller property in order to reduce the size of their mortgage. Respondents could choose multiple options so some may end up opting for a range of changes.
Fixed-rate mortgages are the plan for 40% of those who are currently on variable-rate or hybrid mortgages.
“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 1% is very low. Upon renewal, fixed-rate mortgage holders will be faced with a new reality – higher monthly payments,” added Yolevski.
Enough income?
Despite the concerns overall, 55% of those facing renewals believe their current income will be sufficient to support their new loan.
However, it’s worth noting the strain put on those who have been paying more since rates increased from March 2022 onwards with 42% of variable-rate and hybrid mortgage holders saying that higher interest rates have put a major financial strain on their household, while another 34% say they have imposed minor financial strain.
To cope with higher payments, 46% have cut back on saving, 46% have reduced essential expenses where possible, and 40% have dipped into savings. Again, respondents were able to select more than one answer.
“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.”
