Lenders are competing fiercely for business – and that gives homeowners some negotiating power, says real estate expert
Canadian homeowners are bracing for a wave of mortgage renewals, with about 60% of outstanding mortgages set to renew by the end of 2026.
Plenty of those are renewing at much higher rates than those taken out when the mortgage was originated, during the COVID-19 pandemic – and while there’s no sign of a crisis yet, it’s a trend that has the potential to cause significant financial stress among Canadian households.
Despite the looming rate increases, experts advise homeowners against passively accepting their current lender’s initial renewal terms. Victor Tran, a mortgage and real estate expert at Rates.ca and broker with TMG The Mortgage Group, suggests that the current slow housing market has lenders competing for business, creating opportunities for better rates and more attractive policy terms than those initially offered.
“Homeowners should also review their policies to ensure that they are suitable for the life plans they may have during the duration of the mortgage, which can help save money,” said Tran. He emphasized that starting the renewal process early can prevent unnecessary interest costs and allow homeowners to explore options like Home Equity Lines of Credit (HELOCs) or refinancing without incurring costly fees for breaking their mortgage early.
The purchase market boom of the pandemic has faded into memory, replaced by a sluggish pace of homebuying weighed down by high interest rates and other affordability challenges. That's seen banks increasingly turn their attention to renewal business, meaning the country's leading lenders are competing more fiercely than ever to attract and retain homeowner clients.
Beyond the lowest rate
Tran also cautions that “the lowest rate may not be the best rate.” Some mortgage products with low rates or cashback incentives may come with restrictive clauses, such as stiff pre-payment penalties or clawback clauses, or even the inability to port the mortgage in case of a move. A thorough review of personal finances and future plans is crucial to choose the most beneficial policy, potentially adjusting amortization periods, payment frequency, or switching between fixed and variable rates.
The Bank of Canada is scheduled to announce its next decision on interest rates next week (July 30), and is widely expected to keep rates unchanged as it weighs up whether the ongoing US-Canada trade war poses further upside risk to inflation. Fixed rates, meanwhile, have been on the up in recent weeks thanks to climbing five-year Government of Canada bond yields.
Still, renewing borrowers appear to be coping with higher payments, according to prominent brokers across Canada.
What preparations should be done to prepare for mortgage renewal? Share your insights in the comments below.
