TORONTO, Oct 7 (Reuters) – About 75,000 Canadian homeowners waiting for next month’s mortgage renewal notices will face a shocking rise in interest rates due to an unexpected rise in global bond yields. This will put even more pressure on already tight household budgets.
Unlike the United States, where customers can take out 30-year mortgages, in Canada homeowners can take out 5-year mortgages. That means many Canadians who took out fixed-rate mortgages of less than 2 per cent five years ago are preparing for renewal notices as interest rates soar, made worse by the decline in national debt.
Mortgage brokers estimate that in some cases, mortgage renewal rates could reach 7 per cent, raising the average Canadian mortgage amount by at least several hundred dollars a month.
Canadians are already struggling to pay off their debt amid high living costs and rising interest rates. This has forced banks to set aside funds in case of default, putting pressure on overall profits.
With around C$200 billion ($146.36 billion) of mortgages due for renewal next year, mortgage brokers and lawyers are bracing for more fire sales in the real estate market.
“We get a lot of calls from people who are concerned about maturity dates and what they should do to prepare for mortgage renewals,” said Daniel Viner, a Toronto broker. A boutique mortgage company based in DV Capital.
According to data compiled by financial data company Wawa Leeds, the interest rate on five-year mortgages was approximately 5.34% as of November 2018, and the interest rate on three-year mortgages was 3.59% as of November 2020.
Homeowners will receive notification 4-6 weeks prior to the renewal date. This is because lenders will consider different options at the new interest rate based on market trends at the time of renewal. Global trends in bond yields have pushed Canada’s five-year bond yield up as much as 68 basis points since early September, hitting a 16-year high of 4.46% on Tuesday, compared to 11%. It is likely to be reflected in the monthly update.
“This dramatic rise in bond yields means that when the computer sets next week’s interest rates, it will use higher interest rates based on this higher bond yield,” said Ron Butler, a Toronto-based mortgage broker. It means that.”
Large banks typically contact customers four to six months in advance to outline their renewal options.
Variable mortgages, which accounted for about half of Canada’s mortgage balances from July 2021 to June 2022, were already increasing in tandem with the Bank of Canada’s record rate hikes. As of January, the country’s mortgage debt totaled C$2.1 trillion, according to the Canada Mortgage Corporation.
Now, bond yields are also pushing up fixed-rate mortgages, leaving homeowners with nowhere to hide.
The surge in mortgage costs will further strain household budgets and worsen the cost-of-living crisis that has become a rallying point for many Canadians. As a result, Prime Minister Justin Trudeau’s popularity has plummeted in opinion polls.
Additionally, if the Bank of Canada raises the benchmark interest rate one more time from the current 5% in the coming months, as money markets predict, the mortgage pain could worsen and remain high for an even longer period of time. Analysts believe that there is a high degree of
The Office of the Superintendent of Financial Institutions, the banking regulator, is expected to release new capital requirements guidelines for banks and mortgage insurance companies this month.
British homeowners are also expected to renew their mortgages in the coming months, pushing bond yields higher.
One homeowner said on the X social media platform that the home ownership rate, which was previously 2.6%, has now jumped to 6%. “I don’t understand how people can afford to live in these G7 countries.”
According to the Canadian Association of Mortgage Professionals, one in five borrowers expect to renew their mortgage in the next year, a jump of more than two-thirds over the next three years.
Hanif Bayat, CEO of Wowa Leads, estimates that at least 75,000 consumers receive these letters every month that update their interest rates as they come up for renewal. He suggested that the sharp rise in bond yields over the past month could increase monthly payments by an average of C$600.
Brokers say one option homeowners can take is re-amortization, which means increasing the number of years it takes to pay off the loan.
“I’m hearing concerns, consistent and determined concerns,” Butler said.
($1 = CAD 1.3665)
Reporting by Nivedita Balu in Toronto Additional reporting by Fergal Smith Editing by Denny Thomas, Josie Kao and Franklin Paul
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