credit and debt
PAYING THE PIPER As we move deeper into this heretofore rate-tightening cycle, more and more fixed-rate borrowers are faced with renewing at higher interest rates. It will cost them.
Renewing your mortgage in 2024 is a lot like renewing your driver’s license: painful. While variable-rate mortgage holders have had to endure increasing interest rates all along, fixed-rate borrowers are insulated until renewal time. And since most Canadians choose fixed-rate products (72% of outstanding debt), many haven’t had to face the music of high rates yet. But with Canadian Mortgage and Housing Corporation (CMHC) noting that 45% of mortgages are set to renew over the next two years and 60% over the next three, most have a renewal on the horizon.
With that in mind, it’s worth looking at what renewers are facing today by comparing what the average interest rate is on outstanding debt, versus the average interest rate on funds advanced, i.e. what borrowers are borrowing at today. And depending on the term, renewers are facing a difference, on average, between 1.3 and 2.8 percentage points higher. The good news for most renewers is that their new rate is likely in the ballpark of where they were stress-tested to at origination, meaning they can likely afford the increase. The bad news is they will be facing significantly higher interest costs and they will be spending far more than before to service their debt, which as we see in the next section, is exactly what’s happening.
FIXING OUR ATTENTION ON UPCOMING RENEWALS
$700
8.16%
$600
6.31%
6.02%
5.78%
$500
6.14%
$400
5.02%
4.10%
$300
$200
2.94%
$100
$0
YEAR
TO YEARS
TO YEARS
YEARS
OUTSTANDING DEBT
AVERAGE RATE OUTSTANDING AVERAGE RATE TODAY
DATA: OUTSTANDING FIXED-RATE MORTGAGE DEBT, AVERAGE INTEREST RATE ON OUTSTANDING DEBT & AVERAGE INTEREST RATE ON FUNDS ADVANCED, CANADA
SOURCE: STATISTICS CANADA. TABLE 10-10-0006-01.
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