Rising interest rates will affect Canadian borrowers more than they are expecting. Many mortgages are approaching renewal, and new rates might look very different.

It’s been a while since Canadian homeowners experienced a steep rise in the interest rates. Not only the soaring rates, but also household debt that keeps piling up are concerning to many home owners. As Canadian mortgages approach renewal time, many homeowners are in for a big surprise.

New trend for renewal rates emerges

In a recent report TD looked at the timeline of where regular five-year fixed-term rate stood at the time of the renewal. In the past several decades the graph has been negative. This means that at the time of mortgage renewal rates were often even lower than on initial contract.

In the beginning of 2018 this difference came out positive, for the first time in a decade. This means that many borrowers will be hit with a higher interest rate at the time of the renewal. This change was facilitated by the latest Bank of Canada policies which tightened lending conditions.  Rates are still at historical lows, but they are steadily climbing. The five-year fixed rate was at 3.5 per cent on average in September.

Fixed-rate mortgages will eventually be affected

Experts from major banks predict that rates will continue climbing. They anticipate that the interest rate on outstanding mortgages will increase by about 95 basis points by the end of 2020. About 25 per cent of fixed mortgages come up for renewal every year. This means that in four years all fixed mortgages will be facing higher interest rates. Five-year fixed mortgages are some of the most popular among Canadian homeowners and they represent a huge chunk of the mortgage market. We can only wonder how this will affect the mortgage world.

Positive rate change signifies a new era for mortgage renewals. Canadian borrowers should be mindful of the change. That’s why we encourage all our customer to revisit their mortgages and contact us so we can secure them the best rate. Keep in mind that your switch program allows us to transfer a mortgage to a different lender with the best rates without any cost to our clients. This way we insure that clients receive the best rate that reflects their long- and short-term goals. 

Contact us to secure current mortgage rates while they last.