More Than 2 Million Mortgage Holders Expected to Feel ‘Interest Rate Shock’ in Next 2 Years

A real estate sign outside a home in Vancouver on June 12, 2018. The Canadian Press/Jonathan Hayward

More than 2 million mortgage holders are expected to experience “interest rate shock” due to the rising cost of living as they renew their mortgages in the next two years, according to the Canadian Mortgage and Housing Corporation (CMHC).

In its biannual Residential Mortgage Industry Report, the organization says there are signs of significant financial stress on households.

“What we are seeing is that those early signs of financial stress on homeowners are actually intensifying,” CMHC senior specialist of housing research Tania Bourassa-Ochoa said in a YouTube video.

She said increasing arrears in other areas like auto loans, lines of credit, or home equity lines of credit demonstrate the pressure that Canadian homeowners are under. The same problem could hit the mortgage market between 2024 and 2025.

Ms. Bourassa-Ochoa said the CMHC expected 2.2 million mortgages to be renewed at higher interest rates in the next couple of years.

“For most of these borrowers, they’ve contracted their mortgages at one of the lowest low record interest rates, but they’ve also purchased or refinanced at the peak of the housing prices,” she said. “This is really where the difference is going to be felt and where really a bigger chunk of the budget at the end of the month is going to go towards these mortgage payments.”

She said interest rate increases could mean homeowners will be paying 30–40 percent more when they renew their mortgages.

In the first part of 2023, more than 290,000 mortgages were renewed at higher interest rates, Ms. Bourassa-Ochoa wrote in an article on the CMHC website. Borrowers saw interest rates range from 5.45 percent for a five-year fixed rate to 7.38 percent for a variable rate.

“In 2024 and 2025, an estimated 2.2 million mortgages will be facing interest rate shock, representing 45 percent of all outstanding mortgages in Canada,” Ms. Bourassa-Ochoa said.

She said the increase in interest rates represents “an additional estimated $15 billion more” that homeowners will need to pay each year to ensure mortgage payments are made on time.

Moreover, she noted, the additional monthly payments will mean households cut back in other areas, like savings, buying non-essential goods or services, and non-mortgage debt repayments. It could also force some homeowners to sell their properties.

Delinquency Rates

The CMHC report states that the number of mortgages in arrears has been at “historically low levels” (0.15 percent) for 16 months.

Mortgages at a high risk of default are those over $400,000, according to CMHC, as that category has seen an “increasing trend” in arrears since the latter half of 2023. Those with mortgages above $850,000 have an even higher rate of delinquency.

Despite mortgages under $400,000 having higher arrear rates than the larger mortgage levels, the delinquency rate has not grown.

Borrowers that are in the second and third stages of delinquency, 30–59 days and 60–89 days respectively, saw “notable increases” in 2023 when compared to the same time in 2022, CMHC said.

“An increase in these initial stages in the delinquency process suggests that borrowers are beginning to encounter financial strain,” the report said.

Interest Rate Holds Steady

Bank of Canada (BoC) governor Tiff Macklem said the BoC decided to hold the interest rate at 5 percent during an announcement on Oct. 25, partly because of upcoming mortgage renewals.

“One of the important reasons why we held our policy rate of five percent is that we know that those renewals are coming. So we know that there’s more to come from what we’ve already done,” Mr. Macklem said during a Senate committee meeting on Nov. 1.

The Bank of Canada will be making another interest rate announcement on Dec. 6.

The Canadian Press contributed to this report.