According to the Canadian Mortgage and Housing Corporation (CMHC), over 2 million mortgage holders will experience “interest rate shock” because of the rising cost of living. This is expected to happen as they renew their mortgages in the next two years. Tania Bourassa-Ochoa, a senior specialist of housing research at CMHC, stated that early signs of financial stress on homeowners are intensifying. Increasing arrears in other areas such as auto loans, lines of credit, and home equity lines of credit demonstrate the pressure that Canadian homeowners are under. This issue could affect the mortgage market between 2024 and 2025.
Bourassa-Ochoa said the CMHC expected 2.2 million mortgages to be renewed at higher interest rates in the next couple of years. Most of these borrowers contracted their mortgages at record low interest rates but purchased or refinanced at the peak of the housing prices.
The interest rate increases could result in homeowners 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 emphasized that by 2024 and 2025, an estimated 2.2 million mortgages will be facing interest rate shock, representing 45 percent of all outstanding mortgages in Canada.
The increase in interest rates would mean homeowners would need to pay an additional estimated $15 billion each year to ensure their mortgage payments are made on time. Delinquency rates have been at historically low levels for 16 months, but the report from CMHC states that the number of mortgages in arrears has seen an increasing trend.
The Bank of Canada decided to hold the interest rate at 5 percent, partly because of upcoming mortgage renewals. Bank of Canada governor Tiff Macklem stated that one of the reasons for holding the policy rate at five percent was the knowledge that more renewals were coming. The Bank of Canada will be making another interest rate announcement on December 6th.