Canada’s central bank is just realizing the mortgage rate renewal cliff is much smaller than thought. The Bank of Canada’s (BoC) Financial Stability Report (FSR) shows the average mortgage payment will rise much less than anticipated on renewal. Economists from BMO Capital Markets told investors the improvements are mostly already reflected in the market. Those expecting much further easing in the coming months are likely to be disappointed—unless the trade war picks up. In that case, there would be a totally different set of headwinds for households to brace for.
Canadian Mortgage Rate Renewal Cliff Much Smaller Than Forecast
Source: Bank of Canada.
Canada’s central bank has repeatedly expressed concerns over a rate renewal cliff. Following a borrowing spree fueled by record low rates, borrowers would have to renew at much higher rates. While the majority of borrowers were stress tested for this exact event, the central bank still expressed fears. The average mortgage payment was forecast to rise 15% in 2024—manageable for most, but still enough to throttle consumer cash flow.
The BoC’s Financial Stability Report (FSR) shows reality has been much kinder to borrowers. “In this year’s Financial Stability Report, the Bank highlighted that the pressure will remain through 2026-but crucially, it could be lower than anticipated last year thanks to downward adjustments to expected interest rates,” explained Shelly Kaushik, senior economist at BMO
She points to the FSR projections vs reality, which show the average mortgage payment climbed 4 points less than forecast. Similarly, the BoC’s updated outlook sees payment growth roughly 5 points lower than previously forecast. Mortgage payments going from record low rates to a less than 5% increase on renewal in 2026 is shockingly low risk.
Canadian Mortgage Rates Won’t Get Much Lower Without A Crisis
Those hoping for a return to record-low rates to fuel another frenzy will be disappointed. Following another crisis-speed easing cycle, rates reflect most of the market slack. That is, unless another crisis stacks on top of this recession.
“At this point, the improvement has mostly run its course, as our forecast has just three more rate cuts pencilled in for this year. Of course, rates could go even lower—but that will likely only happen if there is a more meaningful hit to the outlook (and, thus, the labour market) from the trade war,” says Kaushik.
Unlike the temporarily induced recession during the pandemic, the trade war recession isn’t expected to boost home buying. The low rates during this cycle would accompany structural unemployment, similar to the harshest recessions. Those problems won’t be as easily fixed with access to cheap credit.
Tiff’s a clown. He only has two modes: panic & patting himself on the back.
Wrong about 2013 being a real estate bubble, wrong about low rates for long, wrong about inflation, wrong about the mortgage “crisis,”…
Can’t wait until he’s Prime Minister in 12 years.
Tiff’s a clown but not for the reason most people think.
The central bank’s influence is through credit capacity and shouldn’t be direct. When it’s direct, professional investors know not to listen to him when he says things like rates will be low. The average person does not, and will pile into an amount of debt they can’t carry.
If he doesn’t want to go out as the worst thing to happen in Canada, hopefully he stops giving his outlook and talking to households directly. What he’s doing made everyone focus on him, now the average person is paralyzed and won’t consume until he says its okay. It’s one of the most bonkers indication of a credit bubble that I’ve ever seen (even diving through central banking textbooks).
So,
A 5% increase means if you had 2%, rate now you’re going to 2.1% no one is getting 2.1%.Getting a renewed rate of 41/2 or 5 seems like a much larger increase than 5%……..
If you signed at 4% and now your looking at 5% again how is that anywhere near 5% increase. 10% puts them at 4.4%
I understand the blue bars and the yellow bars look very impressive but something in the math seems a little off.
Maybe this needs to be studied by someone other than the banks themselves.
Excellent stories thanks for this
A couple things. It’s 5 points lower, not 5%—so that’s about 10% higher on average for renewal.
That’s applied to the payment (including principal), not just the interest rate.
– A $500k mortgage at 2% would be an average monthly payment of $2,200/month.
– $2,200 * 1.10 = $2,420.
Pretty close to the payment if that mortgage renewed at 3.5% rates. Would have a hard time finding that post-election, but last year that was a pretty easy find. I’d be willing to bet its obtainable in a few months once the trade tensions ease.
Right. The math is embellished to confuse the gullible.
Five years ago,a borrower of a 500k mortgage @ 2% would carry monthly $2,115 PI.
Today the same borrower with a principle balance left of 483k mortgage re-amortized back to 25 years @ today’s 4% would carry monthly $2,544 PI.
representing a 20% increase.
Gotcha
I should stick to me wheelhouse lol
I sold in 23 and have been waiting to re-buy so I am very biased
Thanks for the clarification
Isn’t the BOC supposed to be an expert eye on exactly this sh#*t?
Asking for a friend
-G. Butts…