Borrowers contending with higher renewal rates remain keen to weigh up options
High interest rates are leading many Canadians to hold fire on making a move in the housing market – but they’re also keeping mortgage agents and brokers busy, particularly with early renewals.
While homeowners who took out mortgages in 2018 and 2019 didn’t see the same rock-bottom rates as those who purchased during the first two years of the COVID-19 pandemic, in most cases they’re still contending with much higher rates upon renewal this year and into early 2024.
That’s leading to plenty of discussions with clients on the best options looking ahead, according to Christelle Mwamba (pictured top), a Toronto-based mortgage agent with Mortgage Scout.
She told Canadian Mortgage Professional that many wished to requalify to make sure they could afford their new mortgage payments instead of automatically renewing.
“One of the other reasons is that some lenders are actually offering a better refinance rate instead of renewing with your existing lender,” she said, “because the lender will send you a letter and give you different terms and options for your renewal rate.
“But there are some lenders that are also offering a special rate if you were to move over your mortgage to them. So I’m seeing a lot of people exploring their options just in order to reduce their mortgage payment and save a little bit of money or have some cashflow.”
Combing through lists of clients whose mortgage is coming up for renewal remains a strong option for agents and brokers in the current market amidst a cooler purchase market.
Most homeowners looking to sell their primary residences intend to conduct repairs or renovations, as revealed by a recent study conducted by NerdWallet Canada.
— Canadian Mortgage Professional Magazine (@CMPmagazine) October 10, 2023
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Resilient property values presenting some comfort to homeowners
Meanwhile, property values slipped last year after the red-hot price appreciation of the pandemic – but 2023 home prices are remaining resilient in Toronto, meaning there’s still plenty of value in refinancing and consolidation at present, Mwamba said.
A consequence is that for some homeowners who are contending with increasingly burdensome borrowing costs, there’s still merit in exploring a possible sale.
“It’s still a great time because values have gone up,” she said. “So I think that we’re going to see that also in the market: It’s a great time to have that conversation. Maybe it’s just not feasible to keep the mortgage.”
The future trajectory of interest rates is uncertain in the current market, with little clarity on whether a further hike by the Bank of Canada is on the way next week (October 25) and when it will reach its endpoint on rate jumps.
That means homeowners are anxious in many cases to ensure that they’re not waiting until it’s too late to secure the best deal upon renewal.
“The earlier you’re able to renew or refinance, the cheaper the rate you’ll have,” Mwamba said. “For example, if your mortgage is coming up for renewal in January, this is the time where you want to look around. You don’t want to wait until January because in January, rates might be a lot higher than what they are today.”
Co-ownership on the rise
One trend in the purchase market that’s on the rise is co-ownership, Mwamba said, with separate investors or buyers combining to take out a shared mortgage on a property.
“Two friends or two real estate investors, they buy a rental property and then they rent it,” she said. “So they have the owner-occupied and then they have a rental property which still generates rental income – and it’s also just a great way to stay in the market, so it helps with affordability.”
Unsurprisingly, though, other activity on the purchase side remains muted. “Because of affordability and the cost of borrowing being so high, I’m seeing a lot more of my preapproval clients kind of holding off, going on the side,” Mwamba said, “just because what they [might be] purchasing is not as good – it doesn’t give them enough room, or they just can’t find something within the price range.
“So I think for buyers, because of affordability, that has kind of slowed. What I’m seeing a lot more of right now is actually refinances in terms of early renewal.”
