Calgarians up for mortgage renewal brace for looming BoC interest rate decision

More than two million Canadians will renew their mortgages over the next year-and-a-half. CTV News asked more than 50 mortgage brokers across Canada how to get the best mortgage deal. This is what we found.

While the hope of an impending interest rate cut from the Bank of Canada on Wednesday could ease the blow for Calgary mortgage borrowers, a higher rate awaits the vast majority of those with a fixed rate who are soon to renew their agreement.

Ryan Ballantine locked into a two-year mortgage on his home in 2022 at 5.8 per cent, but now he faces yet another big decision ahead with his mortgage up for renewal again this summer.

“It’s just so daunting to look at the situation now because even when you’re looking at 4.5 per cent or five per cent prime interest rates, I remember when I first got into the market, we were paying two to three per cent,” he said.

“We were hoping to find ourselves in a better spot from an interest rate perspective, but they haven't really dropped as fast as we thought they would. So now the question is,’ Do we take a variable rate because it's expected to drop over the next couple of years? Or do we lock ourselves in again?’ At least that might help protect ourselves against any inflation.”

Ballantine is in the same boat as the vast majority of mortgage borrowers nationwide who took advantage of lower interest rates during the COVID-19 pandemic and will see their payments increase regardless of the Bank of Canada's decision.

That doesn’t bode well, especially for Calgarians who have seen their monthly mortgage payment rise steeply over the last few years and surge above the national average.

According to the Canadian Mortgage and Housing Corporation (CMHC), the lowest discounted five-year fixed rate was 1.39 per cent at the height of COVID-19 in 2020, compared to 4.79 per cent today.

Will the Bank of Canada cut key interest rates?

Financial analysts are beginning to hint that the Bank of Canada may cut its key lending rate by a quarter of a percentage point, but some also expect the rate to hold for a while longer.

"Evidence has continued to build that the current high level of interest rates is no longer needed," RBC said in a client note on Friday.

"Still, while the case for interest rate cuts in Canada is relatively clear — the BoC will likely maintain a cautious tone about the pace of additional cuts after next week."

If the Bank of Canada opts to lower rates on Wednesday, it would mark the first rate cut since March 2020, when the COVID-19 pandemic prompted the central bank to slash its key rate to near-zero.

Bank of Canada governor Tiff Macklem has said a rate cut is within the realm of possibilities, but that the decision will be guided by the economic data. He has said the central bank is seeing what it needs to see but wants to see it for longer to be confident that progress toward price stability will be sustained.

Economists have been particularly encouraged by Canada's marked slowdown in price growth.

The annual inflation rate for April came in at 2.7 per cent compared with 2.9 per cent in March.

Core measures of inflation, which strip out volatile prices, have also steadily eased in recent months.

The interest rate decision follows a report by Statistics Canada last week that showed economic growth in the first quarter fell short of the Bank of Canada's expectations. The report also lowered its reading for growth in the fourth quarter of 2023.

However, the jobs report for April showed employment rose by 90,000 for the month, marking the largest employment increase in more than a year.

If the Bank of Canada does not cut interest rates on Wednesday, it's widely expected to do so next month instead.

70% of Canadian mortgages up for renewal

CMHC says more than 70 per cent of existing mortgage borrowers in Canada have fixed rates which will be up for renewal within the next three years.

Five per cent of fixed-rate mortgages were up for renewal last year, but those numbers are increasing dramatically.

In 2024, 13 per cent of Canadians with a fixed-rate mortgage will be forced to renew. That jumps up to 23 per cent in 2025, 31 per cent in 2026 and 21 per cent in 2027.

Tania Bourassa-Ochoa, the deputy chief economist with CMHC, says a little over one million mortgages in Canada were renewed last year at much higher rates.

“So for this year, 2025 and 2026, we’re expecting at least over two million more mortgages to be renewed,” she said.

“One of the reasons why is because a lot of the mortgaged consumers that renewed in the past two years actually renew at very short term, so they’re actually renewing a second time during the timeline.”

Bourassa-Ochoa says historically a five-year fixed term has always been the most popular, but adds that there was quite a big discount on variable rates two to three years ago when interest rates were super low.

As a result, Canada now has two trillion dollars in mortgage debt (75 per cent of household debt overall) and people with variable rates are slowly starting to default.

Mortgages in arrears expected to reach pre-pandemic levels

Mortgage delinquency rates – the share of mortgages with loans that are past due 90 days or more – in the Calgary area have historically remained quite low, but they have seen a slight increase since January 2023.

According to the CMHA, several leading indicators such as higher financing interest rates, elevated housing costs and rising costs of living suggest an increasing number of mortgage consumers are experiencing significant financial pressure.

It’s expected that financial reserves accumulated during the pandemic have been exhausted and low-to-mid-income households are breaking into their savings to make ends meet.

Changing credit behaviours, negative savings rates and rising delinquencies on credit cards, auto loans and line of credit payments are among the current indicators that Canadian mortgage holders may not be as financially sound after all.

Bourassa-Ochoa notes mortgages in arrears could reach pre-pandemic levels (0.25 per cent) by the end of the year, but more favourable employment in 2025 and tight housing market conditions should limit the increase.

Right now, Alberta’s mortgage delinquency rate sits at 0.28 per cent, which is much higher than the national average.

“Alberta still has been trending down from its peak in 2020 at 0.75 per cent, but in other provinces even if we have lower mortgages in arrears, we’re seeing an upward trend again,” Bourassa-Ochoa said.

“It will be interesting to see how it will impact Alberta in the quarters to come, it’s hard to say how it will play out, but at the national level we are seeing a little bit of an increase.”

Variable or fixed?

Desiree O’Doherty is a Calgary and area mortgage broker with MortgageLine who says even though five-year fixed terms are the most popular option, a mortgage itself still has to suit the needs of a borrower’s financial profile.

“Even though it's stable and predictable, it might not be best for you. So, for instance, if you need to move or you’re wanting to refinance, a shorter-term fixed option or variable rate would probably suit you better,” she said.

“But if you're a buyer that's sitting on the fence waiting for those rates to decrease, you might regret that choice only because the house prices aren't decreasing. So once the rates drop, all the buyers on the fence are hopping off, getting into that market making it even harder to get the home at list price.”

Variable mortgage rates surged in popularity during the height of the pandemic, although Mortgage Professionals Canada reports that 77 per cent of the three million mortgage loans Canadians took out in 2022 were at a fixed rate.

Keith Uthe, a Calgary mortgage broker with Mortgage Alliance, says the Bank of Canada is remaining quite cautious in regards to making changes to its prime lending rate and says even if the rate is cut, it will be done at a very slow pace.

He doesn’t expect to see a rate cut in June unfortunately, but says mortgage borrowers still have a lot to consider.

For example, Uthe says a Calgarian with a variable mortgage could be paying around the 6.2 per cent range right now, whereas someone on a fixed term could be paying in the range of five per cent.

“In one year, you're going to pay an extra 1.2 to 1.3 per cent on your mortgage in that case, so you need to start working numbers based on how much term you have left in your variable rate versus the length of term you’re choosing on the fixed rate,” Uthe said.

“What's the difference in that interest rate and what is kind of a break-even point where you actually could break even if you stayed with your variable versus switching to the fixed? What is the risk involved in that? So, it’s a conversation that requires some detail. It's not just a simple, yes, you should switch for variable effects. For many people, it makes sense, for some people based on their situation it may not.”

Another factor for mortgage holders to consider lies in the length of an amortization rate.

Brie Robertson, a mortgage broker with Illuminate Mortgage Group, says longer amortization periods are much more attractive for borrowers if they are able to qualify for them.

“What that does is, it lowers their overall monthly payments and can be easier to ride out the little bit of inflation," she said.

“We're seeing the other thing that you can do is pick a longer amortization and use your prepayment privileges to pay it down faster, or at your next renewal knock that amortization back down so you're not paying interest over the long term.”

Robertson adds that going with a licenced mortgage broker can also be a more preferred option than with banks.

“We have seen a lot of banks pushing people for early renewal and what they're trying to do is stick people into a high five-year fixed rate,” Robertson said.

“The banks think rates are going to go down so they're actually doing everything they can to stick people at a higher interest rate for a longer term, so they make more money. So what we've seen is usually your bank's first offer is definitely not the best offer.”

Lower rates and higher inventory needed

Calgary realtor Curtis Atkinson with RE/MAX Real Estate says lower borrowing rates and increased inventory will be needed in the region to see pent-up demand help spur market sales and level prices.

“I think that the direct correlation between the interest rate and the ability to buy a home is obvious and additional cost to ownership or overall inflation easing could help produce more sellers,” he said.

“But on the other side to that, many will anticipate the rate reduction and many will also anticipate the fact that there should be further rate cuts, putting people on the sidelines for a little bit longer.”

As a result, Calgary’s housing is highly favourable for sellers with some homes in certain neighbourhoods selling tens of thousands of dollars above asking price, all the way up to $50,000 or $100,000 or more in some cases.

Atkinson says that the price of a home fluctuates depending on its location or what a seller is asking for, and if it’s priced correctly, it could be off the market in a matter of days or even hours.

It has gotten so competitive, that many buyers are removing financial conditions or home inspections to make their offer on a home more attractive.

“The method in which you do offer on a home becomes very important and a lot of people decide to forego those conditions of sale in order to avoid the risk of not being able to obtain that particular property, whether that be finance, inspection, or condo documents,” Atkinson added.

That pent-up demand and competitiveness is again fueled by the need for higher housing supply.

In its monthly real estate update, the Calgary Real Estate Board (CREB) saw a total of 3,092 resale homes in May. While this is nearly one per cent below last year’s record high, it is 34 per cent higher than long-term trends for the month.

Ann-Marie Lurie, chief economist at CREB says the pullback in sales was primarily driven by declines in lower-priced detached and semi-detached homes, where there was limited supply choice compared to last year.

“Although new listings have increased, much of this growth is in higher price ranges for each property type,” she said.

“Our strong economic situation has supported sales growth in these higher price ranges. However, this month’s sales could not offset declines in the lower price ranges due to a lack of supply choice.”

The benchmark price of a residential property rose to $605,300 for the month of May – up 9.5 per cent year-over-year.

By property type, the benchmark prices last month were:

• Detached: $761,800 – up 13.0 per cent year-over-year;
• Semi-detached: $678,400 – up 13.2 per cent year-over-year;
• Row: $462,500 – up 19.3 per cent year-over-year; and
• Apartment: $340,500 – up 17.9 per cent year-over-year.

With files from The Canadian Press