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Canadian Mortgage Renewals Face Imminent ‘Interest Rate Shock’: CMHC Warning

An estimated 45% of Canadian mortgages are to confront payment surge in the next two years.

In the light of escalating economic pressures, Canadians topping off their fixed-interest mortgages in the coming years have more reason to be wary, as an “interest rate shock” looms on the horizon.

The Canada Mortgage and Housing Corporation (CMHC) reveals approximately 300,000 homeowners have grappled with drastically raised payments at higher interest rates at the time of renewing their mortgages.

“Depending on the initial interest rate and what the current lock-in rate is, these homeowners may face a payment increase anywhere from 30 to 40 per cent,” explains CMHC researcher, Tania Bourassa Ochoa, using data from mortgages renewed earlier this year as a reference. 

Encapsulating the magnitude of the looming crisis, Ochoa describes the situation as “the tip of the iceberg”. Significantly, she notes, one in three Canadians operates on a variable mortgage rate, a category that has already been bearing the brunt of the rising interest rates. Still, she warns, the most significant interest rate shocks are still to come.

According to Bourassa Ochoa, from 2024 through to 2025, close to 2.2 million mortgage borrowers are set to renew, an alarming figure that represents 45% of all ongoing Canadian mortgages. These homeowners are on the verge of experiencing the brunt of the interest rate shock, which could see an aggregate increase of an additional $15 billion in payments.

“These borrowers are most likely to feel the pinch as they had secured their mortgages when the interest rates were at record lows and housing prices were peaking, therefore any discrepancy will surely be felt keenly,” the CMHC researcher pointed out.

Despite the low rates of delinquencies on mortgage payments, increasing numbers of Canadians are grappling with other household debts, including credit card debts, auto loans, and lines of credit, presenting an exasperating problem for homeowners.

Bourassa Ochoa cautions that these expanding debt burdens cannot be overlooked as they have already been amplifying the financial strain on Canadians. As they shift resources to manage timely payments, these households are exposed to elevated levels of risk, and this level of vulnerability might lead to new financial challenges in the future.