Doomsday predictions for the impact of increased mortgage rates on upcoming mortgage renewals were a dime a dozen a couple of years ago as interest rates started climbing back to their historical average (5% – 7%) from rock bottom numbers (1% – 2%). Most mortgages will be renewing in 2025 or 2026 and the fiscal pain is proving to be less than projected.
While everyone has seen a climb in rates and their payments are increasing, thankfully the average impact is just over an 8% increase in payment for 2025 and it is projected to be roughly 4.5% in 2026. For example, with every $1000 in mortgage payment for 2025, payments for that thousand equate to an extra $80, and in 2026 it looks like it would only be an extra $45.
There are a few factors that are mitigating the pain of these payment increases. Income growth, according to StatCan, indicates that average weekly wages have risen almost 25% over the previous five years. Additionally, the Bank of Canada notes that north of 90% of renewers with a five year fixed mortgage will face payment increases that “are smaller than they were stress-tested for.” Every mortgage applicant is required to qualify for their mortgage at a rate 2% higher than what they received at the time they purchased/refinanced.
On the flip side of this coin, the current trade dispute and increased tariffs do pose challenges to employment and income, especially to industries that are heavily dependent upon trade. In response to this, many lenders have already tightened their underwriting to offset risks to those in export-heavy sectors.
Again, though, Canadians are conscientiously reducing their household debt and decreasing their household debt to disposable income ratio. It is notable that among mortgage holders, 60 day credit card arrears are merely up a negligible 6 bases points (below historical averages). Renters don’t seem to be responding in the same manner, with arrears up to 23 bases points among their group. Furthermore, a silver lining lies in the fact that current mortgage arrears are lower than the rate experienced during the 2008-2009 global financial crises.
Obviously, a pro-longed trade dispute would impact credit and credit defaults, but given the conservative stress tests, the Bank of Canada is confident “…banks will remain resilient.” Navigating this change to the economic cycle will require patience and conscientious, responsible spending by both consumers and government.
If you need more information regarding mortgages of if you need any advice on your personal situation please contact our office at 604-556-3893 or email at alex.kotai@ymscanada.ca.
For more information on our mortgage products and your preferred Abbotsford Mortgage Broker, please visit our website at www.ymscanada.ca.
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