Canadians took a proactive approach in ensuring they got the best mortgage rates. 

According to new data from Nesto, mortgage renewals were at an all-time high prior to this week's dramatic Bank of Canada rate hike. Renewals were at their highest levels in June 2022 (36.11%) since January 2021 -- an indication that people want to secure their low rate before more rate hikes happen.

The June 1st announcement brought the overnight rate to 1.5%, up from 1.0%. On Wednesday, Canada’s central bank announced it would increase its overnight rate by a surprising 100 basis points (bps) -- the largest hike since 1998. This brings the current rate to 2.5%. 

For some people -- like those with mortgages that are up for renewal soon -- this may have very real financial impacts when it comes to monthly expenses. 

In addition to a notable rise in renewals, the July report points to a drop in average down payment amounts. Instead of maintaining an average down payment of $70,000 or increasing further, the number dropped to $65,500 in June.

balanced marketsHomes in Mississauga

Even with ongoing rate hikes, Nesto says that we’ll see that variable mortgage payments are lower than their fixed rate counterparts. 

“Fixed rates are due for continual increases, while variable rates will take a considerably longer time to get to such high levels,” reads the report. “Yes, both are going up, but they are not moving at the same speed. For this reason, no matter the province you reside, variable rates are still a great option to keep mortgage payments low.”

Fixed rates continue to rise at a faster pace than variables, according to the data. This gap widened from March 2022 onwards ( >3% for fixed, and < 3.0% for variable), which is attributed to Bank of Canada’s interest rate hikes. 

Nesto’s last report highlighted that, while renewals were still higher than they were at the start of 2022, they did fall slightly in May 2022 (compared to April 2022) among users. Looking at June 2022, comparatively, renewals again took the lead, and this time, had one of the most major jumps since 2021. With renewals at 36.11%, this marked a 6% hike from their previous documented high in April (30.03%) of this year. This is a loud and clear indication that people are realizing now is the time to renew or to lock in their low rate before yet another rate hike takes hold.

With Canada's central bank signalling that we could see more hikes, we could see this trend continue.

CMHCRow of modern townhouses in Vancouver, Canada

On the new purchases front, June 2022 saw a drop in new purchases, which speaks to the changing nature off the housing market in the wake of a two-year-long red-hot run inspired by the pandemic. In fact, we witnessed the largest decline among new purchases since December 2021, with the number dropping from 58.46% to 52.11%. This speaks to the hesitancy in the new homebuyer market and concerns around affordability in light of inflation as well as rate hikes, says Nesto. 

As Nesto reported last month, there was an increase of users “just looking,” sitting at 55%, and a decrease of users “ready to buy,” sitting at 45%. The situation continued in June 2022. “Since home prices are still relatively high, and mortgage interest rates are at the highest point since pre-pandemic, it makes sense to see that ‘just looking’ continued to have a majority stake at 56% of Nesto users, compared to 44% who were ‘ready to buy’,” reads the report. 

That market cooling trend has continued, as predicted, highlights the report. The median down payment total dropped further again from May 2022 to June 2022, now sitting at $50,000. This marks a $15,000 decrease in one month, and a $20,000 difference from the previous high in April 2022 of $70,000. We also see the median purchase price drop to $496,000 from $500,000, says Nesto.

"These numbers showcase that the rising interest rates are putting the power back into the homebuyer after a few years where sellers held it," reads the report. In terms of qualifying for that mortgage, however, that may be another story...