Early refinancing and other adjustments can provide relief for Canadians
Canadian homeowners may face less financial pressure during upcoming mortgage renewals than previously expected, thanks to proactive measures and easing interest rates.
Maria Solovieva, an economist at TD Economics, released a report suggesting that many borrowers have already taken proactive steps to minimize the "renewal shock" of higher rates. Adjustments such as refinancing into fixed-rate mortgages, increasing monthly payments, and cutting back on non-essential expenses have helped borrowers navigate the rising-rate environment.
“The key factors behind this expected easing are lower interest rates and increased payments, which have helped to front-load the payment shock,” Solovenia wrote in the report. These changes, she explained, have reduced financial risks and could leave consumers with more disposable income in 2025.
“In turn, reduced debt payments could stimulate consumer spending more than expected, shifting the balance of risks toward higher inflation,” she added. “This could challenge the Bank of Canada’s goal of ‘sticking the landing’ and argues for a more measured and gradual approach to rate cuts.”
Around 1.2 million mortgages will come up for renewal in 2025, according to Canada Mortgage and Housing Corporation (CMHC). About 85% of these were originally signed when the Bank of Canada’s policy rate was at or below 1%. With interest rates expected to decline further, many borrowers who chose shorter-term fixed mortgages during the rate peak are now positioned to benefit from upcoming rate cuts.
“In fact, many Canadians who renewed or initiated their mortgages at the interest-rate peak opted for shorter terms, positioning themselves to reset their mortgages at a lower interest rate in the coming year thanks to a significant reduction in interest rates,” Solovieva explained.
Read next: Economists confident in December rate cut amid inflation growth
The easing of mortgage renewal pressures is expected to leave more room in household budgets, potentially fuelling consumer spending in 2025. However, the report cautioned that this increased spending could complicate the Bank of Canada’s efforts to control inflation. Solovieva suggested a gradual approach to rate reductions to balance economic growth and price stability.
“While we still expect consumers to remain cautious overall, this positive trend could offer a boost to consumer spending in 2025,” Solovieva said in the report.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
