Canadian Mortgage Trends ~ June 23rd, 2024

Payment shocks at renewal due to shorter mortgage terms have become a growing concern for many Canadians. This has led some to question whether adopting longer mortgage terms, similar to those in the United States, would provide greater financial stability.

While Canadian lenders can theoretically provide 15-, 20-, 25-, or even 30-year mortgage terms, market realities and consumer preferences pose substantial challenges.

“The reason we don’t have long term mortgages in Canada is not because they’re illegal, it’s because within the Bank Act… banks are limited on what they can charge for prepayment penalties if you break the mortgage,” Edge Realty Analytics founder Ben Rabidoux explained at a recent conference in Toronto.

“There’s a tremendous amount of interest rate risk embedded in giving someone a 30-year mortgage and then having them break it down the road,” he continued. “So, the banks are like ‘we’re never going to offer 30-year mortgages if we have no way of ensuring that you’re going to stay within that.’”

This issue is particularly pressing as 76% of outstanding mortgages in Canada are expected to come up for renewal by the end of 2026, with the associated payment shocks expected to lead to a rise in mortgage delinquencies.

Assuming no change in interest rates by then, the median payment increase for all mortgage borrowers would be over 30%, while fixed-payment variable-rate borrowers would see their payments rise by over 60%, according to Rabidoux.

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