Canada’s Coming Mortgage Renewal Wave: No Longer a Crisis?
Recent shifts in the Canadian mortgage market have defused what many feared would be a significant financial challenge: the mortgage renewal wave of 2025–2026. Earlier this year, analysts and regulators raised alarms about the economic strain posed by mortgages renewing at substantially higher rates than when originally issued. However, recent developments have painted a less dire picture.
Tumbling Rates Ease Concerns
The Bank of Canada’s (BoC) aggressive rate cuts—amounting to a total of 175 basis points since May—have eased fears of a "mortgage cliff." Fixed and variable rates have fallen sharply, significantly reducing the payment shocks borrowers might face. Doug Porter, chief economist at BMO, noted that concerns about a renewal crisis were overstated, adding, “The Bank of Canada’s rate cuts were intended to avert precisely this risk, and they’ve succeeded.”
Broker Perspectives
Mortgage brokers report that clients renewing in 2024 are managing well. Borrowers who locked in fixed rates around 3% in 2019–2020 are now renewing at rates in the low-to-mid 4% range, Most borrowers are seeing payments similar to or slightly higher than their original terms, thanks to principal reductions over the years.
Looking Ahead
While rates are unlikely to return to the ultra-low levels of the pandemic era, economists predict further rate reductions in 2025. BoC Governor Tiff Macklem has hinted at a slower pace of rate cuts moving forward but remains committed to economic stabilization. Borrowers renewing at modestly higher rates—say, 3.5% instead of 1.5%—will find the adjustment manageable, unlike the catastrophic jumps initially feared.
Canada’s New Mortgage Rules: Insights from Brokers
The federal government’s sweeping mortgage reforms, effective this December, aim to address Canada’s persistent affordability challenges. While the measures expand access for many buyers, experts remain divided on their long-term impact.
Key Changes to the Mortgage Landscape
- Higher Insured Mortgage Caps:
The cap for insured mortgages has increased from $1 million to $1.5 million. This change allows buyers of higher-priced homes to qualify for smaller down payments, which was previously limited to properties under $1 million. For instance, buyers of homes priced at $1.2 million now require just a 5% down payment instead of 20%.
- Extended Amortization Terms:
First-time buyers and new build purchasers can now access 30-year amortization periods, reducing monthly payments. However, the longer repayment term means higher total interest costs unless buyers accelerate payments.
- Refinancing Options for Additional Dwelling Units (ADUs):
Homeowners can refinance insured mortgages on properties valued up to $2 million to fund the construction of ADUs, such as laneway homes.
The Bigger Picture
Housing affordability remains a politically sensitive issue, and further measures may follow. CIBC economist Benjamin Tal expects announcements in the upcoming Fall Economic Update, as housing becomes a critical factor in the next federal election.
Is a BoC Rate Cut Now Off the Table After Latest Jobs Figures?
The Bank of Canada faces a tough decision at its upcoming January meeting following a surprisingly strong December jobs report. The robust labour market casts doubt on the likelihood of further immediate rate cuts, though analysts remain split on the BoC’s next steps.
Labour Market Surprises Economists
Canada’s economy added 91,000 net jobs in December, pushing unemployment down to 6.7% from 6.8% the previous month. Gains were widespread across sectors, led by the public sector, educational services, and transportation. Andrew Grantham, senior economist at CIBC, remarked, “The labour market ended the year with a bang, defying expectations of a slowdown.”
Implications for Interest Rates
The BoC has already reduced its benchmark rate by 1.75 percentage points over the past year to stimulate economic growth. However, the jobs report has dampened expectations of another cut in January, with the probability of a rate reduction falling to 61% (from 70%) according to Reuters.
Doug Porter of BMO explained, “Strong labour data reduces the urgency for further rate cuts, though the broader economic context still supports a gradual easing strategy.”
Key Economic Indicators
Despite job growth, wage increases are moderating, with annual wage growth slowing to 3.8% in December. This trend helps mitigate inflationary pressures, which is a positive signal for continued monetary easing later in 2025.
Global Context
Canada’s economic resilience is closely tied to US demand, with nearly 9% of Canadian workers employed in export-reliant industries. The strong US job market, which added 256,000 positions in December, suggests stability south of the border could influence Canadian monetary policy in 2025.