Canadian Mortgage Borrowers To See Payments Rise 20%: Bank of Canada

Canada’s real estate frenzy fallout is only just beginning, according to its central bank. The Bank of Canada (BoC) published their latest Financial System Review (FSR) today, with mortgage repayment presenting a threat to the economy. They forecast that existing borrowers will see their payments climb significantly by 2025, especially if borrowers don’t extend the repayment term. 

Canadian Mortgage Borrowers To See Payments Rise 20% Higher

Canada’s central bank sees mortgages causing some economic risks for the country. Borrowers are looking at significantly higher payments, after rate normalization. “By 2026, nearly all mortgage holders will have seen their payments increase,” wrote the BoC. 

Both fixed- and variable rate mortgage payments will have climbed by the end of 2026. The median payment is estimated to be 20% higher than February 2022, before rate hikes. They estimate the average fixed rate borrower will see their payment increase between 20% and 25% during this period. 

Mortgage Payments Need To Climb 40% To Prevent Longer Terms

The above number includes amortization extensions. This is when the repayment term is lengthened to bring down payments, at the expense of more interest. If original repayment timelines are maintained, the central bank estimates payments will have to climb closer to 40% for fixed rate borrowers.  

Variable rate borrowers were already hit, reminds the BoC. They estimate payments have climbed around 50% since February 2022, and climbed with each hike. This segment represents a small share of total mortgages in Canada, and only really became popular with investors recently.

Canada’s Rising Mortgage Payments Will Be “Manageable For Most”

The setup won’t exactly be a good time, but the central bank doesn’t see significant risk. Borrowers have been stress tested since 2018, giving the BoC some confidence in having a payment cushion. They also remind us that incomes have climbed since then, helping to offset some of the impact of rising rates. Not to mention borrowers who bought prior to 2020 have significantly smaller mortgages, with a big ole’ equity cushion to help out in a worst case scenario. 

Rising payments are manageable for “most,” but they are counting on some households feeling the pinch. A combination of higher debt service levels, lower home equity, and longer amortization schedules can leave some borrowers more vulnerable to shock. Though every shock has brought in a cushion accompanied by moral hazard.  

The BoC appeared to only really focus on defaults as a risk of higher payments and longer amortizations. However, rising payments means households will divert more cash to non-productive assets already purchased. That’s going to present a weight on the economy, limiting the growth. 
As for longer amortizations, Canada’s bank regulator recently warned they can prop up prices. Maintaining market inefficiencies creates all kinds of issues, from diverting more capital from other areas of the economy, to creating further moral hazard.

10 Comments

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  • Ken Lankin 9 months ago

    And we are just figuring this out now ! Seriously! I have been in the mortgage biz for 50 years . We have all seen ups and downs ! What the public has not seen was 12% interest rates .. majority of today’s mortgage holders only have eyes for what has been seen during the past 5 years ! People got killed on variable rates ! Why ? It’s a huge $$$ maker for lenders . Their cost of funds in this product was low …not so much today ! Housing is not a gamble and unequipped bankers and mortgage brokers played mortgage vs house ! They are losers and now have cost their clients ! Government has messed this up for sure, but it is the consumer who needs to be smart enough to make several inquires . Not just believe their bank is the best …we all know it’s not …

  • Joe M 9 months ago

    If only 1/3 of Cambodian households are carrying a mortgage, is this really that bad of news for the ROC?

    • J 9 months ago

      1/3rd of 2 Trillion dollars of Canadian mortgage held by banks and private lenders. Lets let that sink in.

  • Frank P 9 months ago

    Won’t happen. If rates stay high til 2026 then we will have bigger problems.

  • JCH 9 months ago

    Nah, never fear, the BoC will soon have the interest rate back below 1% – too many corrupt politicians will scream if the value of their real estate investments drop any more, plus I’m sure BoC officials themselves have big RE portfolios! In fact the only people without real estate portfolios to be propped up are the unfortunate “have-nots”.
    Everyone, we need to all lobby our politicians to #lethomepricesfall !!

  • Alex 9 months ago

    I don’t think they can let house prices fall. The higher the price, the higher the profit to banks and the higher the tax amount to the city. In return, landlords pass that onto renters, which in turn ask for raises so they don’t go homeless. The bank regulator is putting a floor on prices, so that no one escapes Dante’s infernal, and then BoC is complaining about a wage spiral and sticky inflation (Rinse and repeat). Groceries costs are going through the roof, and big ticket items too. And just in case BoC or the bank regulator fails, Trudeau is bringing in more immigrants so that we can have ourselves a genuine fight club. Home Depot and transportation companies are mentioning that people are not buying a lot of big ticket items anymore or doing renovations. It’s literally a choke hold… Also, there is rumour that the pension fund we are all contributing to, will be obsolete by 2050, so folks will need a house to use as a credit card (with their reverse mortgage bs), when there is no more pension. Last but not least, Freeland says she needs to practice fiscal restraint, but only her lips are moving…

    I think it either all goes down the creek in a basket, or we all continue to live in our dysfunction corruption where we pay the mafia what it asks us and hope to cash in, in the process (at the risk our kids won’t have anywhere to live)

  • Sergey Goncharov 9 months ago

    Their most pressing concern is to never lose any money. They are doing everything to prop their ill gotten gains and make others pay for their bad bets. This is “free” markets for you, for those naive who still believe there is such thing as free market. Free market is for us, communism is for them. These people who represent so called “elites” do not care that they are basically undermining majority ability to ever have decent place to call their own. It is all about their investment and them dear.

  • Dean B 9 months ago

    Whoever did the math and calculations for the BoC to predict 20% needs to check their numbers again. My Mortgage already has climbed up 35% .

  • James kambeitz 9 months ago

    This a joke, the banks are trying to make home ownership a rarity. It’s call the WEF and their Great Reset. Where we own no property and we will be happy. The banks can easily freeze the rates but they don’t. Pierre talked about it a few times. This is no conspiracy theory, it’s fact. Trudeau is the most corrupt pm Canada has ever had. If it goes up by that then my mortgage payment will have doubled over 6 years.

  • Rob Duncan 9 months ago

    Don’t think the interest rates will go down you’re dreaming was just at The Royal bank of Canada short term high risk lines of credit AR between 12 and 17%. If you’re a builder you’re in big trouble.

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