Mortgage renewal crisis fading – and presenting opportunity for borrowers, brokers

The threat of a looming 'mortgage cliff' appears to have been averted by falling rates. Here's the renewal landscape now facing homeowners

Mortgage renewal crisis fading – and presenting opportunity for borrowers, brokers

It’s long been flagged as one of the most prominent coming trends in Canada’s mortgage market – and the wave of mortgage renewals slated for 2025 and 2026 is about to begin, with scores of borrowers refinancing at higher rates than they originally took out.

That burst of renewals was first viewed as a big looming challenge for the national financial system: in May last year, Canada’s banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), said  many homeowners were liable to face “payment shock” with 76% of mortgages outstanding as of February 2024 up for renewal by the end of 2026.

But a flurry of interest rate cuts throughout last year by the Bank of Canada, and a slide in fixed rates, saw the threat posed by the so-called “mortgage cliff” fade, with the potential jump in payments now expected to be significantly more manageable for most homeowners.

That trend towards lower rates is a welcome development for borrowers, according to Manulife’s head of national distribution Mario Cloutier (pictured top), and one that the lender is paying close attention to as it gears up for a busy 2025.

“Two million homeowners refinancing their mortgage in the next two years in conjunction with the current rate decrease we’re currently experiencing is bound to give consumers more flexibility and choices in their next mortgage solutions,” he told Canadian Mortgage Professional.

“We’re committed to being prepared to offer alternatives tailored to their current realities. Our approach will focus on understanding each client’s unique financial situation and providing personalized, advice-driven mortgage solutions that align with their goals.”

Stress test removal on renewals another welcome development

In September, OSFI provided another shot in the arm for homeowners, announcing that it was scrapping the requirement for uninsured borrowers to carry out a stress test when switching their lender at renewal time.

That was credited as a “huge win” for borrowers by Toronto broker Micky Khaneka, who told CMP in November that the change would also elevate the role of the broker in the mortgage process and allow them to guide homeowners through the range of options at their disposal.

Cloutier said brokers would continue to play a pivotal part in the mortgage market in general throughout the year ahead.

“The main differentiator for mortgage brokers is their unwavering focus on the client’s best interest, which is their sole key performance indicator,” he said. “Unlike traditional financial institutions, mortgage brokers are uniquely positioned to prioritize and advocate for their clients’ specific needs and goals.

“This client-centric approach allows brokers to deliver personalized, advice-driven solutions that truly align with the homeowner’s financial situation and aspirations.”

Bank of Canada weighs in on impending surge of renewals

The Bank of Canada said in a recent analysis that it estimates about 40% of all outstanding mortgages will renew at higher rates between now and the end of 2026, with fixed-rate products accounting for the majority of those.

Some borrowers will face a significant payment shock at renewal time – but many will also have greater flexibility when they renew, the central bank said. “This is because they will have paid down part of their principal over those five years, while also potentially seeing an increase in their income or the value of their property,” it noted. “These borrowers will therefore have room to refinance their mortgage if needed.”

Borrowers who took out a fixed-rate mortgage with a term under five years around 2023 or 2024, meanwhile, are much less likely to see their mortgage payments shoot dramatically upwards, the central bank said.

What’s more, there seems little chance of an imminent upturn in interest rates. While government bond yields are spiking worldwide, Canada is a noted exception to that trend as US president-elect Donald Trump’s threats of huge tariffs weigh against economic growth prospects.

Signs of a resilient labour market in December sparked some speculation that the Bank of Canada may opt against another rate cut this month – but the central bank is still expected to continue bringing rates lower throughout 2025, suggesting that variable rates will fall even further.

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