In 2025, a significant number of Canadian homeowners will face mortgage renewals, with over 1.2 million mortgages set to expire. 85% of these were initiated when the Bank of Canada’s policy rate was at or below 1%.
Given the current rate environment, even with anticipated reductions, many borrowers will encounter higher interest rates upon renewal. Renewing at higher rates will likely lead to increased monthly mortgage payments which could throw a consumers budget out of balance.
Strategies to Mitigate Impact:
Find a Mortgage Broker: Find a broker you like and feel comfortable with – this should be a lifelong relationship. With direct lender relationships with all the top banks/monoline lenders/credit unions, we can provide access to a broader range of options, including access to lender promotions and rate specials.
Consider Amortization Adjustments: Extending the amortization period can lower monthly payments, though it may increase overall interest paid.
Leverage Home Equity: Utilizing accumulated home equity might offer opportunities to refinance under more favorable conditions.
Financial Planning: Assess your financial situation to accommodate higher payments, potentially adjusting budgets or increasing savings to manage the transition.
Get Organized: Pull together your last two years income documents (T4s, Notice of Assessment, T1), your current mortgage statement, property tax statement, and current list of assets/values.
Market Outlook:
While some experts predict potential rate reductions by the Bank of Canada through 2025, significant declines are uncertain and cannot be predicted. Whatever the case, one thing is for sure, and that is that this mortgage environment is significantly different than when you last secured a mortgage! Variable rates have been (thankfully) declining steadily, and fixed rates are down, and up and then down again…..where does that leave consumers? The spread between fixed and variable mortgage interest rates in Canada varies depending on the lender and the specific terms of the mortgage, but has narrowed with every Bank of Canada interest rate decrease, making the decision one that must be closely analzyed alongside your personal budget. It is absolutely necessary to work with a mortgage broker so they can explain all the options available to you and advocate to lenders for you, knowing your personal circumstances more intimately.
The number one factor in efficiently securing a competitive mortgage rate at renewal is proactive organization. In today’s financial environment, timing is key – the more time to prepare the better. With rate specials coming out regularly, it is those that are ready to act quickly that will succeed. Most often, lenders send out rate specials with a specific set of criteria the client must meet….if you can qualify, it’s best to get your deal into the queue asap before the lender’s business volumes explode with new business as a result of their promotion. If we have your file set up and all the required documents on hand, we can move on any opportunities that present themselves.
It would be wise to connect with a mortgage broker 3-4 months prior to your mortgage renewal date. Together, we can discuss your current financial circumstances, rates, and potential options that might suit you. I offer my clients the opportunity to build a strong lifetime relationship together navigating financial needs as they change, as well as discounted interest rates and discounted legal fees through my colleague legal firm Summit Law. It’s a win/win/win!