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Published February 29, 2024
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Preparing for a 2024 Mortgage Renewal

If your mortgage renews in the coming months, it’s going to sting. Prepare by shopping around and understanding your options.

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The pandemic’s rock-bottom mortgage rates sent the housing market on a bender that lasted almost two years. The party ended once rates increased, and the hangover hit many homeowners with a vengeance. Those facing a mortgage renewal are about to feel the effects.

But hangovers can sometimes make challenges feel insurmountable. For all the worry homeowners  expressed about keeping up with rising variable mortgage costs, the country’s mortgage arrears rate was just 0.16% at the end of September, and that’s after variable rates rose by 475-basis points in the preceding 19 months.

Renewing your mortgage in 2024 won’t be enjoyable, and it will put pressure on your finances. But understanding a few key details of what a mortgage renewal might entail could help you find a path to affordability and help ease that headache. 

Good news: Some renewals may skip the stress test

On November 21, the federal government announced a new Canadian Mortgage Charter as part of its Fall Economic Statement[1]. The charter includes a recommendation that homeowners with insured mortgages no longer be stress tested when they renew their mortgage with a different lender. 

Prior to the announcement, lenders had little reason to offer mortgage clients competitive rates upon renewal. Borrowers could choose to accept their current lender’s offer or apply with a new one, where the mortgage stress test would add another 2% to their minimum qualifying rate.

With that risk in mind, borrowers tend to re-up with their original lender and accept the more expensive renewal rates.

But with the Canada Mortgage Charter now in effect, waiving the stress test on insured mortgage renewals should inject more competition to the market and theoretically lead to lower renewal rates across the board — once lenders comply.

To make best use of the increased choice, you may want to consider working with a mortgage broker, who can help you access and compare a greater number of mortgage offers. 

Expect higher mortgage renewal rates

If you haven’t received a renewal offer from your lender yet, you’re probably wondering how much higher mortgage rates will be when it comes time to renew. That’s a tough question to answer accurately, but a little data can provide some context.

According to Statistics Canada data, the average fixed mortgage rate on insured mortgages with terms of five years or more was about 3.14% in 2019. At the time of this writing, some mortgage brokers were offering discounted fixed rates around 5.3%. So if you were to renew today, you might pay at least another 2% on your mortgage.

Large banks, however, tend to base their mortgage renewal rates on their posted mortgage rates, which can be quite high. The average posted rate on a five-year fixed-rate mortgage at Canada’s chartered banks was 7.04% as of November 29. 

It’s difficult to estimate where rates will be in 2024. Fixed mortgage rates are determined by bond market activity, which can be unpredictable. Variable mortgage rates will only dip when the Bank of Canada lowers its overnight rate.

Rates are expected to trend lower next year, though. Slowing inflation and other signs of economic stability should help make that happen, but finding a rate significantly below 5% could be a challenge.

Understand your mortgage renewal options

Let’s take a look at three strategies you can use to try and get a better deal on your mortgage renewal.

Shop around

It generally takes less effort to renew with your current lender, but seeing what other lenders are offering could save you a lot of money.

Switching lenders may not require another stress test in 2024, but you’ll still have to qualify for the new mortgage. Reducing debt and improving your household’s cash flow in the meantime can encourage lenders to offer you an even better rate.

Use your prepayment privileges

One path to a more affordable mortgage is by making a larger down payment and borrowing less. You can apply the same logic to a renewal by paying off as much of your mortgage as possible prior to negotiating your next mortgage contract

Many lenders allow you to prepay a certain amount of your mortgage each year, either by increasing your monthly payment or by making lump-sum payments. If this is part of your mortgage contract and you have the cash available, a prepayment or two could help make your renewal more manageable.

Nerdy Tip: It’s important to understand your lender’s prepayment limits and the penalties you may be charged for exceeding them. Some lenders, however, allow you to make principal prepayments of any amount at renewal time.

Re-amortize

Extending your amortization period at renewal can result in smaller monthly payments and make your mortgage more affordable — in the short-term, at least.

Over time, however, re-amortizing can be a risky strategy. It can generate years of additional interest charges and potentially cloud your financial future. If re-amortizing means paying off your mortgage when you’re 60 instead of 55, for example, it could impact your retirement plans.

Let’s assume you have 15 years left on a mortgage worth $350,000. If you opt for a five-year fixed term at a renewal rate of 5.5%, your monthly mortgage payment would be $2,848. If you extended your amortization to 20 years, your monthly payment would be $2,395.

You’d save almost $500 per month, but you’d also pay $254,889 in interest by the time your loan is paid off. With a 15-year amortization, your total interest cost would be $162,693 — over $92,000 less. 

To avoid forking over a mountain of extra interest payments, you could extend your amortization for a single term and then return to its original length the next time you renew. Doing so could give you a few years of relief, but your payment will take a leap when you eventually trim your amortization period, so you’re really just delaying the payment shock you’re currently trying to avoid.

Consult a mortgage professional to find the renewal strategy that’s right for you. Understanding your options, and their long-term impacts on your financial health, can take some of the sting out of a painful situation.

Article Sources

Works Cited
  1. Department of Finance Canada, “2023 Fall Economic Statement,” accessed March 6, 2024.

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