Homeowners renewing their fixed-rate mortgage next month will likely see their payments jump by 21%, according to a new analysis from Ratehub.ca.
Looking at five-year fixed-rate mortgages that are now up for renewal, homeowners who locked in a 2.69% rate in 2017 -- the best rate available at the time -- will be stuck renewing at a minimum of 4.89% (the best available rate today).
In November 2017, the average home price in Canada was just under $504,000, so assuming a purchase price of $500,000 with 10% down and a five-year fixed rate amortized over 25 years, homeowners were paying a monthly mortgage of $2,122.
Renewing now at the 4.89% rate with a mortgage balance of $394,170, homeowners are facing a new monthly mortgage payment of $2,567 -- an increase of $445 or 21%. This represents an extra $5,340 in payments each year.
“Households with fixed rates up for renewal in the coming months will see their monthly mortgage payment jump substantially," said Ratehub.ca Co-CEO James Laird. "In order to make their higher mortgage payments, households will have to cut back in other areas."
The Bank of Canada has been on an interest rate hiking spree, raising their overnight lending rate from the historically low 0.25% seen throughout the pandemic. With hikes beginning in March of this year, the Bank of Canada rate now sits at 3.25%, and many experts are predicting an additional hike in later October.
The hope, Laird says, is that household income will have increased enough over the past five years to a point where homeowners are able to absorb the higher mortgage payments.
"At a minimum, as long as the income profile is similar to what it was five years ago, the household should be able to manage the higher payment," Laird said. "It is important to note that anyone who got a mortgage five years ago would have passed the stress test rate of 4.99%, which means making the payment should still be possible, but could be painful."
As more renewals come up while interest rates continue to rise, Laird is reminding homeowners that they can check out other lenders to see which one will offer them the best deal.
"With rates on the rise, shopping for your renewal rate has never been more important and in many cases switching to a new lender can lead to the lowest rate," Laird said, adding that "anyone with a renewal in the next 120 days is eligible to hold today’s fixed rates."
