After locking in low mortgage rates several years ago, it’s now time for many Canadians to pay the piper.
With more than a million mortgages up for renewal this year in a country without the United States’ popular 30-year-fixed option, many Canadian homeowners are facing the prospect of higher monthly payments due to higher interest rates.
According to a fall 2024 report on the residential mortgage industry, Canada Mortgage and Housing Corp. (CMHC) said 1.2 million mortgages will come up for renewal in 2025. Of those, 85 per cent were contracted when the policy rate was at or below one per cent.
As a result, some borrowers are refinancing or moving to other lenders in search of better products and rates.
Renewals generally maintain or shorten the amortization period without increasing the principal amount, while refinancing can lengthen the amortization period or increase the principal amount.
“The renewal and refinance space is strong right now,” said Eddy Cocciollo, president of Dominion Lending Centres and DLCG Mortgage Group, which have offices in Port Coquitlam and elsewhere in Canada.
“One, the renewals are coming up, two, the equity is there and three, the wage increases are available, so people are taking advantage of it.”
He said sticker shock is to be expected, since rates were at record-low pandemic emergency levels five years ago. With incomes now higher, households are in better shape to absorb rate increases, he said.
“You are not seeing clients get into trouble necessarily,” Cocciollo said.
After seven consecutive cuts since June 5 of last year, the Bank of Canada announced it would hold its policy rate at 2.75 per cent on April 16.
The next announcement is scheduled for June 4.
The decision to hold the rate, according to Canadian Mortgage Brokers Association - British Columbia president Rebecca Casey, is an indication that the central bank is stepping back to observe both the economy and the outcome of the Canadian federal election.
“I think that 25-basis-point cut they didn’t do [on April 16] is going to make an appearance possibly in June. That would be my guess, but it’s really hard to tell,” she said.
In the meantime, Casey said she is seeing more refinancing. This is because higher interest rates and inflation in recent years caused many households to accumulate more debt.
“With slightly lower rates than we’ve seen in the last 24 months, with a little bit more room in the stress test because of the slightly lower rates, we are seeing people do some debt consolidation,” she said.
This includes situations where lines of credit are maxed out or used to supplement income. Typically, there is also credit card and vehicle debt in the picture.
“That’s usually when we’re getting a phone call, when people want to instigate a refinance,” Casey said.
“If we’re in a position to lower the overall debt by extending their amortization, we’re creating a bit of breathing room.”
It being tax season, Casey said she is also seeing more self-employed clients refinance to pay Canada Revenue Agency debt. This usually pushes the borrower from a prime lender to an alternative lender, she said.
Spring market sluggish, more credit sought by some
As the spring market gets underway, home sales are at relative lows, with prospective buyers adopting a wait-and-see posture amid the federal election and international trade tensions.
Some real estate agents say they are observing a lukewarm spring housing market, with transactional volume trending significantly below the 10-year average for this time of year.
Justin Herlick, CEO and co-founder of Toronto-based homeownership platform Pine Canada Financial Corp., said many of those taking out or renewing mortgages are increasingly considering lower-cost providers.
“Everyone’s looking to save money,” he said.
He said platforms like his offer better rates right off the bat, sparing consumers uncomfortable back-and-forth negotiations with traditional banks, which rarely offer their best rates at the outset of discussions.
Some families are seeking more credit to cushion their financial situation. Herlick said he’s seeing a lot of interest in home equity lines of credit, which generally carry lower interest rates than personal loans or credit card debt.
“Families that need cash, whether it’s unexpected financial hardship or large purchases or renovations or they’re trying to help their children buy a home and they need to access more money, they’ll tap into that,” he said.
“Especially if things are uncertain, some people would rather know that they have access to that line of credit.”
Some lenders offer products that combine mortgages and lines of credit, easily facilitating emergency funds and a safety net, said Dominion’s Cocciollo.
Amid ongoing economic and political uncertainty, Herlick said some consumers are now hesitant to use variable products, especially since it’s unclear how much lower, if at all, interest rates could go. Some experts say mortgage rates will not descend much further as long as inflationary tariffs and counter-tariffs are in place.
Much will depend on the next government’s actions and priorities.
Although proposals are still up in the air, Herlick questioned increasing government intervention into housing markets, which the Liberal Party of Canada has suggested it would do.
“I think that’s definitely challenging, because we have many well-established homebuilders that are capable,” he said.
In any case, the next government needs to encourage the right types of housing, he said, meaning creating more family-friendly homes in cities where there is an oversupply of smaller units, he said.
“You hear a lot about shortage, shortage, shortage. It’s actually more of a market mismatch,” Herlick said.
“We have some of the most condos we’ve ever had on the market … but the units that are mostly available for sale are sub-700-square-feet single bedrooms or one-plus-dens. These are not properties that families can live in.”
Meanwhile, Canada’s mortgage market is evolving. According to CMHC, mortgage delinquencies are rising from historically low levels in 2024, but they remain below pre-pandemic levels and notably below averages since 1990.
Total Canadian mortgage debt rose 3.5 per cent year over year to reach $2.2 trillion last July. That increase is below recent averages, according to CMHC.
Cocciollo said it may be worth getting a pre-approval or starting the refinancing process without necessarily committing. That way, one can be ready to take advantage of favourable market conditions.
“I think it’s a very good buyer’s market, and people do realize that,” he said.
“But they want to make sure that when they are going in with two feet, that they are doing it at a time when they are confident.”
