Canadian Mortgage Renewal Challenges: Bond Yields Surge Impacting Homeowners
The Canadian housing market is currently facing a significant challenge. Canadian mortgage renewal challenges are becoming more prevalent as approximately 75,000 homeowners anticipate their mortgage renewal notifications next month. The excitement we feel is mixed, with the worry of increases in interest rates, which have been caused by the rise in global bond yields.
In Canada it’s common for homeowners to choose five year mortgages unlike in the United States where 30 year mortgages are more popular. Many Canadians who secured fixed rate mortgages at than 2% five years ago are now preparing for renewal notices that indicate a jump in interest rates. This increase is made worse by the sell off in the bond market.
In some cases renewed mortgage rates could even reach 7%. Experts in the mortgage industry predict that this could result in Canadian homeowners having to pay hundred dollars each month on average.
All this is happening as Canadians struggle with debt payments alongside rising living costs and higher interest rates. As a result banks are setting aside funds to prepare for defaults, which affects their profitability.
Considering that around C$200 billion worth of home loans will be up for renewal year professionals working in the mortgage sector such as brokers and legal experts are preparing themselves for an increase, in property sales.
Mortgage Renewal Concerns Amplify
Daniel Vyner, a broker, at DV Capital has been receiving calls from individuals who’re concerned and seeking guidance on how to navigate their upcoming mortgage renewals. Based on data provided by Wowa Leads, the interest rate for a five year mortgage was 5.34% in November 2018 while the three year rate stood at 3.59% in November 2020.
Typically homeowners receive renewal notices around 4 6 weeks before their renewal date. These notices provide them with options and updated interest rates that reflect the prevailing market conditions during the time of renewal.
Given the surge in bond yields, where the Canadian 5 year yield has increased by 68 basis points since September and reached its highest point in 16 years at 4.46% it is likely that these elevated bond yields will have an impact on the rates for November renewals.
Ron Butler, a mortgage broker based in Toronto expressed his thoughts on this situation by stating that the significant increase, in bond yields suggests that the upcoming renewal rates will be determined based on these bond yields.
The Canadian mortgage renewal challenges don’t end here. Home loans that made up 50% of Canadas mortgages between July 2021 and June 2022 have been increasing, reflecting the Bank of Canadas swift rise, in interest rates. According to the Canada Mortgage and Housing Corp. as of January this year the countrys mortgage debt stood at C$2.1 trillion.
The Canadian mortgage renewal challenges are a pressing concern for homeowners. With the surge, in bond yields many homeowners are looking for ways to minimize the impact. Brokers have proposed a solution; re amortization, which essentially means extending the repayment period of the loan.
