Rates are expected to drop – but don't count on a dramatic surge
With the onset of the COVID-19 pandemic came dramatically slashed rates and a mortgage refinancing boom as Canadians rushed to take advantage of the prospect of significantly lower borrowing costs – but that trend faded abruptly as rates began to spike again in 2022.
The Bank of Canada has hiked its benchmark rate by 475 basis points since March of that year, a huge jump that was also accompanied by a surge in fixed rates and plummeting demand for refis.
Canada Mortgage and Housing Corporation (CMHC) revealed in its residential mortgage industry report last May that refinancing had dropped by 32% across the country as a result of those higher interest rates, with growing consumer debt loads another worrying trend.
Rates are projected to begin falling at last in 2024 – but that doesn’t necessarily mean a big uptick in refinances is on the way this year, according to an Ontario-based broker.
Matthew O’Neil (pictured top), president of Connolly Capital Mortgage Solutions, told Canadian Mortgage Professional that refinancing had remained muted except among those borrowers who had a strong need for it.
“What we’re finding and what we found in 2023 is that most people are just choosing not to refinance if they don’t need to refinance to consolidate debt,” he said. “People are simply not doing it because the rates are too high and the math doesn’t make sense.
“So the people who would refinance to either invest or buy another property, they’re just simply not doing it. Will that change moving forward and rates go down? I hope so, but the people who don’t need to consolidate debt, I’ve found, have kind of moved to the sidelines.”
Renewal wave set to dominate mortgage market in 2024
While the market may still not be right for borrowers to refinance, a huge number will face what’s certain to be one of the biggest trends of 2024 in the mortgage space: mortgage renewal, in most cases at a significantly higher rate than their original contract rate.
Approximately $900 billion worth of mortgages are scheduled for renewal between now and 2026, and O’Neil said his team’s strategy for the coming wave is to get out in front of clients as soon as possible to talk through their options and swiftly put a plan in place.
That’s still important even though most borrowers who took out their mortgage five years ago, in 2019, aren’t likely to face as steep a payment increase as those whose term began during the rock-bottom interest rate years of the early pandemic, in 2020 and 2021.
Borrowers are likely to consider as wide a range of options as possible when renewing, accroding to Leah Zlatkin of Mortgage Outlet.
— Canadian Mortgage Professional Magazine (@CMPmagazine) January 15, 2024
Read more: https://t.co/dBE3AYSKaY#mortgageindustry #industrytrends #mortgagerenewal #mortgagebroker
“Most of the renewals this year are from our 2019 borrowers, so that was kind of before the massive surge in 2020 and 2021,” O’Neil said. “So I don’t think we’ll see the surge of it yet until into 2025, and 2026 is going to be the big year.
“We’re trying to have that call [to discuss options] with people as early as possible up to at minimum, I’d say, six months before. A lot of times we would call people four months before, but now people appreciate those extra 60 days just for the advice piece.”
Why waiting it out is often a better option than renewing immediately
Plenty of banks and lenders are now calling clients six months before renewal – but it’s usually in the borrower’s best interest to wait it out and assess their options, O’Neil said, because of the fact that the rate changes as soon as they sign the agreement.
“We’ve had a couple of instances where the bank calls clients for an early renewal and they sign it – but then the problem is that it kicks in as soon as you sign that early renewal agreement,” he said. “So the [borrower] basically lost five, six, seven months of their lower rate because their 3% turned into 5.5% right away.
“So we have to be careful in that and advising people, ‘Hey, don’t sign anything yet.’ And if you’re going to renew, don’t sign anything until 30 days or 14 days before if you want to keep your rate as long as you possibly can.”
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
