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Is your mortgage up for renewal? How to lessen the coming sticker shock


Interest rate increases this year have been so steep that Canadians renewing their mortgages in the next six months could face larger payments, even if they’ve been hacking away at their principal for years.


For years, borrowers coming to the end of their mortgage term would face rates that were marginally higher at worst and considerably lower at best, said Ron Butler, mortgage broker at Butler Mortgage Inc.


Now, though, soaring interest rates mean many homeowners are contending with significantly higher borrowing costs at renewal, he added.


“I don’t think the public has seen this for a very, very long time,” Mr. Butler said.

For example, take the hypothetical case of a Toronto homeowner who bought an averaged-priced home in the city for $822,510 in July, 2017, with 20 per cent down. Back then, the borrower got a five-year fixed rate of 2.69 per cent amortized over 25 years, which translated into a monthly payment of $3,010.


Now suppose this borrower is renewing this month at what is, for today’s standards, a competitive rate of 4.59 per cent. This homeowner would face a new monthly payment for $3,551 – $541 more a month or $6,492 a year – according to calculations provided by financial products comparison site Ratehub.ca.


In real life, many borrowers with impending renewals aren’t getting quite such a sticker shock, said James Laird, co-CEO of Ratehub Inc., which runs the Ratehub.ca site and has its own in-house mortgage brokerage.


That’s because borrowers can lock in fixed rates up to 120 days prior to renewal, Mr. Laid noted. This means many who are renewing now are doing so at the rates that were available in April.


David Larock, a mortgage agent with TMG The Mortgage Group, said the calls from concerned clients he’s fielding these days aren’t from borrowers who are renewing this summer, but from those whose terms end about six months from now. The common worry, he said, is that rates will be even higher by then.


Around 17 per cent of mortgages renew nationally every year, according to Mr. Butler, who said the number is the industry’s traditional estimate of annual churn. Of those, around 85 per cent have terms of five years, by far the most common mortgage agreement length in Canada. Another sizable chunk of renewals – roughly between 6 and 8 per cent – have terms of one year, with the rest made up of a mix of less popular contract lengths, he said.


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