Nearly 60% of Canada's outstanding mortgages due by 2026: RBC

Nearly 60% of Canada's outstanding mortgages due over the next three years by 2026: RBC

Home for sale, sold over asking. (Shutterstock)

Will the Bank of Canada’s policy interest rate come down to a more moderate level within the foreseeable future?

With the rate currently hovering at 5%, it could be a painful road ahead for many with mortgages. A new market update by RBC Capital Markets warns about 60% of outstanding mortgages at Canada’s major banks will be due and up for renewal within the next three years between 2024 and 2026.

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These homeowners would face a potentially significant “payment shock” upon renewal, which could also put banks at risk.

“Unless there are significant declines in interest rates, we believe that credit losses will inevitably rise, perhaps significantly in 2025 and beyond,” reads the update.

The first wave up for renewal in 2024 carries a value of $186 billion in mortgage loans. With the current policy interest rate of 5%, monthly payment shock increases of 32% are predicted in 2024.

This is followed by an even larger wave of $315 billion in mortgages reaching renewal in 2025, which would see a similar payment shock of 33% at the current rate. This is followed by the largest wave of $400 billion in mortgages in 2026, when the payment shock could be 48% upon renewal.

Those with mortgages due in 2026 face the most significant shock, as they hold a larger proportion of variable rate mortgages. Based on the current rate, their payment shock could be nearly double at 84%.

“Interest rates would need to decline significantly to ‘save’ this cohort,” reads the update.

Many of these mortgages were hammered when interest rates were at 0.25% over two years at the peak of the pandemic and the pandemic-induced, house-buying spree, with the first rate increase to 0.5% made in March 2022 being the Bank of Canada’s initial attempt to curb the skyrocketing inflationary trend that emerged in early 2022.

After the Bank of Canada’s unexpected decision earlier in 2023 to continue policy interest rate hikes, it has scrapped the previous potential forecasts by analysts that the rate could begin to rescind in early 2024. The timeline for the potential first cut has now been moved to later in 2024 at the earliest to as late as sometime in 2025.

On October 25, 2023, the Bank of Canada held the rate of 5%. The next scheduled interest rate announcement is December 6, 2023.

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