Banks suggest silver lining amidst concerns of rising mortgage payments
The nation's major bank leaders have offered a reassuring outlook that impending interest rate increases will neither overwhelm borrowers nor trigger a surge in loan defaults.
With 14% of Canadian mortgage holders poised to renew their loans this year, big bank CEOs believe that even with rising interest rates, borrowers will be able to handle the increases without falling into default.
During a recent RBC Capital Markets conference in Toronto, the bank leaders suggested that an average increase of about $5,000 per year in mortgage payments is manageable for most, thanks to Canadians' savings, higher earnings, and readiness to cut non-essential spending to keep their homes.
The bank chief executives, while maintaining a cautious outlook on Canada's economic future, also hinted at an anticipated decrease in interest rates later in the year, which could benefit the vast majority of mortgage borrowers facing renewal in 2026 or later.
Dave McKay, CEO of Royal Bank of Canada (RBC), said interest rates "will come down significantly by 2025 and 2026." He observed that borrowers who’ve already gone through the renewal process have successfully managed the increased monthly costs – a trend he anticipates will persist into the year.
McKay projected an average monthly payment rise of $400 for Canadian mortgage holders in 2024, consistent with adjustments seen in the previous year.
Scott Thomson of Bank of Nova Scotia and Victor Dodig of Canadian Imperial Bank of Commerce (CIBC) predict their clients will see monthly payments rise by $400 to $700.
Dodig pointed out the hefty costs of selling a home, such as legal and moving fees, which can amount to $50,000 to $60,000 for a $1 million property.
“I always like to remind everyone that clients do the calculation of keeping their home even though mortgage payments would increase on a monthly basis,” he said.
Looking ahead, an average of 24% of home loans at the country's biggest banks are set to renew next year, with the figure jumping to 35% in 2026, followed by about 22% the year after. This schedule comes at a time when lower interest rates are anticipated, alleviating concerns about mortgage renewals.
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Analysts, including Darko Mihelic of RBC Capital Markets, echoed the sentiment of reduced anxiety over mortgage renewals, citing market expectations for declining rates. The conference also served as a platform for the CEOs to forecast the timing and extent of potential rate cuts by the Bank of Canada and the US Federal Reserve, with predictions ranging from a 75-to-200-basis-point reduction by the end of 2025.
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