As if we needed anything else to add to the economic challenges Canada will be facing over the next couple of years, the mortgage situation could prove to be very difficult for many Canadians. As many as 3.3 million mortgages are set to renew in the next 18 months, likely at interest rates considerably higher than those mortgage holders are paying at present. This was according to the Chief Bank Inspector at the Office of the Superintendent of Financial Institutions (OSFI).
Needless to say, 3.3 million is a pretty significant number. The Financial Consumer Agency of Canada (FCAC) reports that just under 13 million homeowners have outstanding mortgages. This means that about one-quarter of all mortgage-holders in Canada will be faced with a renewal before the end of 2026, in most if not all cases at a higher interest rate than they are currently paying.
As a result, Canadians are considering various financial changes to manage the increased drain on their finances. Some are looking for a new lender, changing amortization periods or looking at cost-cutting in their daily lives to cope with higher mortgage payments. Some Canadians are even contemplating selling their current home and downsizing to something less expensive.
Although lending rates have come down somewhat from their recent highs, no one is expecting rates to return to their rock-bottom levels of a few years ago. Continuing stubbornly high inflation is likely to have the Bank of Canada resist reducing inerest rates substantially for at least the next couple of years. The fact that the federal Liberal government added the mortgage stress test to lending criteria, which meant mortgage payers had to prove they could finance payments significantly higher than the prevailing interest rates, has made things even more difficult for existing and potential homeowners.
Canadians tend to be cautious borrowers where their mortgages are concerned. About 75 per cent of Canadian homeowners have a fixed-rate mortgage as compared to about 20 per cent for a variable rate mortgage. Historical data show that in the long term, a variable rate mortgage is the better deal but people who take on a variable rate mortgage have to be able to handle the risk of short-term interest rate fluctuations that could temporarily hike mortgage payments. The survey also showed that about half of Canadians have five-year mortgage terms, and about 40 per cent chose a 25-year amortization period.
Some other recent data suggest that, more than ever, Canadians will remain bound to their mortgages. A survey conducted by Royal LePage among Canadians who were approaching retirement in the next two years showed that about one-third said they will continue to have a mortgage into their retirement years. In the survey, about 45 per cent of respondents who planned to retire soon had already paid their mortgages off and another six per cent said they’d be able to pay off their mortgage before they retired. That leaves a big chunk of retirees who will carry a mortgage into retirement.
The survey also found that the current generation of retirees are much more likely to be carrying mortgages into their retirement than previous generations. Part of this is attributable to the fact that more older Canadians approaching retirement are helping their children to finance the purchase of their first home given the difficulties for young people to get into the housing market.
Changing social trends have also had their impact on the housing market. Now that people are living longer and healthier lives, downsizing in retirement is much less likely than it has been in the past. Many retired individuals are remaining in their family home for longer than they would have in previous generations. The assumption that retirees will automatically downsize upon retirement is no longer a given.
The short-term outlook for the Canadian economy is not promising. The combination of unpredictable Trump tariffs, large government debts, sluggish private sector expansion, a slowing global economic cycle and rising unemployment do not bode well for the next couple of years. Add to that the fact that a major proportion of Canadians will be looking at higher mortgage payments will further dampen economic prospects. It’s no wonder that they call economics the dismal science.
She has published numerous articles in journals, magazines & other media on issues such as free trade, finance, entrepreneurship & women business owners. Ms. Swift is a past President of the Empire Club of Canada, a former Director of the CD Howe Institute, the Canadian Youth Business Foundation, SOS Children’s Villages, past President of the International Small Business Congress and current Director of the Fraser Institute. She was cited in 2003 & 2012 as one of the most powerful women in Canada by the Women’s Executive Network & is a recipient of the Queen’s Silver & Gold Jubilee medals.
