The mortgage renewal environment is looking up. Here’s why

Is it almost time for your mortgage renewal? For the past several months, there has been a certain amount of stress among borrowers who are approaching renewal time. Many experts have been warning home owners of the difficult times that are ahead, thanks to rate increases that will significantly impact monthly mortgage payments. However, there is some good news on the horizon for borrowers that should help ease some of their worries. Here’s why the renewal environment is looking up, and why most home owners don’t need to fear.

The stress test comes into play

To get approved for a mortgage in Canada, borrowers must pass the stress test. This tests your ability to handle a mortgage that is two percentage points above current rates. The idea is to prepare home owners for potential rate increases in the future. A few years ago, when rates were at their lowest, borrowers were tested to see if they could manage rates above five per cent. Now, most renewal rates are coming in just below five per cent. Home owners have already proven they could take on rates even higher than those we are seeing today. While this is still a big leap, most home owners should be able to manage their renewal quite effectively.

The rate forecast is optimistic 

The Bank of Canada has dropped rates 0.75 per cent this year alone. In January, the overnight lending rate was at 5 per cent, and it now sits at 4.25 per cent. Of course, this means mortgage rates have also begun to lower. While borrowers are still renewing at higher rates than those they secured when they got their mortgage, they are not looking at record-high rates. Plus, most experts agree that rates should continue to lower as we progress into 2025. This means borrowers who are renewing next year will likely be in a good position.

Most households are prepared 

Another important note to remember is households are generally prepared for a mortgage renewal. Since 2020, the average dual income household has experienced a 23 per cent increase in wages. Even though mortgage rates are now higher, so are incomes. This is still true after considering the effects of inflation and taxes. For many borrowers, renewing at a higher rate won’t be a huge financial burden.

Plus, there is the fact that many current home owners are not renewing their mortgages for the first time. Those who bought their home before the pandemic are likely used to dealing with rates similar to those we are seeing today, since they have renewed before. The shock will be biggest for buyers who are coming up on their first renewal. Still, the vast majority of borrowers will be just fine!

Your mortgage broker can help!

Finally, it’s important to remember that your mortgage broker is here to help. As brokers, we don’t stop advocating for you once you are in your home and have closed the deal. Even years down the line, we are here to ensure your mortgage still meets your needs and your wants. As you come up for renewal, be sure to reach out. We can evaluate your situation, address any questions you have, and talk you through the process.

While mortgage renewals can seem intimidating, the renewal environment is much less ominous than initial predictions indicated. Most borrowers should have a smooth transition as they settle into their new terms. However, it is still important to be prepared, and to let a mortgage broker guide you! We are here to address any questions or concerns you have, so you can feel fully confident come renewal time.

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.