Today, the Bank of Canada made its first interest rate announcement of 2024, confirming speculations that interest rates would be held at 5%. This announcement raises the question of how current mortgage holders will cope with upcoming renewals. Considering that there have been ten interest rate increases since March 2022. To shed light on this matter, a recent survey conducted by the Bank of Canada reveals that Canadians seem to be adapting well to the higher inflation and interest rate environment.
Canadians Adjusting to Higher Rates
Last week, the Bank of Canada released the results of their quarterly consumer survey, which provides insights into how Canadians are handling the impact of rising interest rates. Remarkably, the survey indicates that 80% of respondents reported feeling confident in managing their mortgage payments during renewal. This suggests that, despite the challenges posed by higher mortgage payments, most Canadians are well-prepared and feel financially secure.
Realities of Mortgage Renewals
While survey results often differ from real-world scenarios, alternative lender Equitable Bank (EQB) offers valuable insights into how Canadians navigate the current payment shocks. EQB specializes in providing mortgages with shorter terms to borrowers with poor credit profiles and offering more flexible lending options for business owners. According to EQB CEO Andrew Moore, 80% of residential mortgages at the bank have been successfully renewed since the interest rate increases took effect.
Interestingly, despite a weaker credit profile and a significant portion of mortgages being renewed at higher payments, EQB’s mortgage defaults remain low. As of Equitable Bank’s Q2 2023 report, only 0.41% of the bank’s mortgages are currently in default. This data suggests that even borrowers with less-than-ideal credit profiles are finding ways to manage their mortgage payments effectively.
Strong Performance of Prime Lenders
The positive trend of mortgage renewals extends beyond alternative lenders like EQB. Major Canadian prime lenders, including banks and mortgage finance companies, have also demonstrated exceptional performance. Throughout the past two years of increasing interest rates, defaults in this segment remain at a historic low, measuring at only 0.16%. This indicates that most homeowners successfully navigate their mortgage renewals without defaulting on their payments.
Looking Ahead
Looking ahead, approximately 3.4 million mortgages are set to renew in 2024 and 2025. Additionally, 2026 will mark the fifth anniversary of Canada’s record-setting year for real estate sales. Consequently, many of these mortgage renewals will come with increased payments, potentially putting more pressure on homeowners. However, both market expectations and existing data suggest that Canadian homeowners have managed the current environment reasonably well thus far.
It is important to note that the situation could change, especially if interest rates continue to rise. However, it seems that Canadian homeowners are resilient and adapting successfully to the challenges posed by higher mortgage payments. Whether due to careful financial planning, favourable lending conditions, most mortgage holders appear to be weathering the storm.
Written for you by:
Phone: 705-927-6236 // bradpsinclair@gmail.com // www.bradsinclair.ca // www.kawarthacottagesforsale.com
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