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81% of mortgage borrowers are impacted by rising rates

CMHC 2024 Mortgage Survey highlights

The last several years have been a tumultuous time for mortgage shoppers. Variable interest rates have marched steadily higher since March 2022, in tandem with the Bank of Canada’s 10-part hiking cycle. Meanwhile, Canada’s bond market – which sets the pricing floor for fixed mortgage rates – has been all over the place, as investors react to any hint that the central bank could keep borrowing costs higher, for longer.

Meanwhile, higher rates have put the squeeze on existing mortgage holders, forcing some to take extraordinary measures to maintain their payments. Many who have come up for renewal – or are poised to this year – are also grappling with a much more challenging rate environment than when they first got their mortgage. For example, both fixed and variable mortgages could be found for under 1% back in 2021; fast forward to today, and the lowest rate options are in the upper 4 - 7% range.

It’s a lot for borrowers to take in and, according to new data from the Canada Mortgage and Housing Corporation (CMHC), has shaped new preferences and trends in the Canadian mortgage marketplace.

The Crown Corporation’s latest Canadian Mortgage Survey, which polled 3,866 respondents, sheds light on the type of mortgages borrowers are now gravitating to, and the measures they’re taking to cope with today’s much higher mortgage rates, whether they’re first-time buyers, renewing their mortgage, or refinancing their loans.

Let’s take a look at some of the key highlights.

Borrowers have higher-rate strategies in place

“Throughout 2024, affordability and rising interest rates continued to be some of the biggest factors impacting mortgage consumers,” states the CMHC’s report. Overall, a total of 81% of mortgage consumers have been impacted by recent or impending mortgage rate increases; a significant increase from 74% in 2023.

And anxiety around rising rates is evident – half of all respondents say they’re worried about not being able to make their mortgage payments in the future.

However, many of these borrowers have a strategy in place, such as cutting expenses, creating  a budget, or increasing their income. And homeowners are clearly prioritizing their mortgages: while “many consumers struggled with their debt,” says CMHC, “only 14% found it hard to cover their mortgage payments.” 

Fixed rates are still king

Demand for fixed mortgage rates remained solid between 2023 and this year - not surprising given how drastically variable rates have increased in the last 18 months. A total of 69% of mortgage consumers opted to lock into a fixed rate this year, up from 66% in 2023. Variable mortgages were selected 23% of the time (down from 27%), with a combo of the two rates 5% of the time.

While fixed rates have always made up the majority of mortgages, these numbers reflect that demand is normalizing for them after the brief rush for variable that occurred during the pandemic, when rates were held at record lows. According to Ratehub’s own data, variable options drove 26% of user inquiries in 2022, compared to 8% before the pandemic began. That plummeted to just 5% in 2023, following the BoC’s rate hikes.

Renewing borrowers are stretching their mortgages

Those approaching the end of their mortgage terms are exploring ways to reduce the financial impact of higher rates upon renewal. According to the CMHC, there was a “notable shift” among renewing borrowers choosing longer amortization periods, as well as shorter renewal terms.

Thirty-two per cent of renewing borrowers chose an amortization period of between 11 - 20 years in 2023, indicating they were sticking with their original mortgage pay-off timeline. However, this year, 29% chose an amortization period of 25 years or more. (in Canada, the longest an amortization period can be for an insured mortgage is 25 years, and up to 30 for a borrower with over 20% equity. Borrowers who have at least 20% of their home’s value paid off have the option to extend their mortgage up to 30 years at renewal time if they choose.)

Taking this approach can reduce monthly payments considerably, though it will mean the borrower will ultimately pay more in interest over the course of their mortgage. However, it has been a increasingly-used tactic to prevent payments from ballooning upon renewal.

Amortization periods for current mortgages.Source: Canada Mortgage and Housing Corporation

Also read: Should you extend your amortization at mortgage renewal time?

Meanwhile, borrowers are also increasingly taking out shorter mortgage terms; while five-year terms remain the most popular at 43%, three-year terms now account for 23% of mortgage renewals, up from 18% in 2023. This offers the borrower greater flexibility to make a change to their mortgage in the future, in the event rates go down.

Renewal terms for current mortgages.Source: Canada Mortgage and Housing Corporation

Mortgage renewers are worried they can’t keep up with payments

According to the survey, renewing mortgage holders were the largest borrower group, making up 62% of the market, compared to 58% in 2023. Among these borrowers, a whopping 71% have a fixed mortgage rate (22% with variable) and 46% have an insured mortgage.

Soaring mortgage rates have already taken a toll on renewers; 67% reported they have already been impacted, while 15% anticipate they soon will be. Notably, renewing borrowers are concerned they may have trouble maintaining their debt payments once they renew into a higher rate, with 50% worried they could default on their mortgage in the future.

Renewing your mortgage? See how your payments may change with our mortgage renewal calculator

However, it doesn’t appear that today’s higher rates are forcing borrowers to refinance their loans – at least, not yet. The number of mortgage refinances has stayed stable so far in 2024 at 19%. When surveyed about the top reasons to refinance, consumers commonly said funding home renovations, reconciling debts, buying a rental property, or to purchase a non-real estate asset or investment. However, 56% report they’ve had trouble with their debt payments and are worried about defaulting in the future. 

The home buyer pool is shrinking

Not surprisingly, tougher borrowing conditions have translated into fewer active home buyers. According to the data, first-time home buyers make up just 10% of the consumer pool, down from 12% in 2023, while repeat home buyers declined to 8%. 

Also read: First-time home buyer programs in Canada in 2024

Overall, though  it appears Canadians are still feeling largely positive about homeownership, with 79% believing it’s a good investment, and 77% saying they feel they can make their future mortgage payments.

However, higher rates have made many rethink their buying plans.Three times as many buyers say they’ve delayed buying a home (13% compared to 5%) as a result, with first-timers and newcomers to Canada most likely to postpone their purchasing plans.

The same rate pressure has also caused 22% of respondents to buy a home sooner than they had intended to.

The bottom line

Despite growing optimism that interest rates could ease this year, the cost of carrying a mortgage will remain quite high for many borrowers for the foreseeable future. Those shopping for a new mortgage rate, or who are considering adjusting their existing mortgage term to account for higher rates, are wise to connect with a mortgage professional such as a broker, who can provide specific guidance, and with insight into the most advantageous products offered by a variety of lenders.

Also read:

Penelope Graham, Director of Content

Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.