Rising Interest Rates Impact Canadian Mortgage Landscape
Surge in Mortgage Interest Payments
Since the initiation of interest rate hikes by the Bank of Canada in early 2022, mortgage interest payments in Canada have witnessed a substantial increase. According to Statistics Canada’s latest release, as of the third quarter, mortgage interest payments have surged by an alarming 89.6% since March 2022. Concurrently, the amount of mortgage principal paid has experienced a decline of 16.8% over the same period.
Slowed Growth Amid Unchanged Benchmark Rates
While the Bank of Canada has maintained its benchmark rate since July, the pace of mortgage payment growth has slowed. In the third quarter, the growth rate eased to +3.6%, down from +5.9% in Q2.
Household Debt-Service Ratio at Record High
The surge in interest costs has pushed the household debt-service ratio to a historic high of 15.22% in the quarter. National Bank Financial economist Daren King attributes this increase to a record surge in interest payments over six quarters, reaching the highest level since 1995.
Implications for Future Homeowners
With almost three-quarters of Canadians with a residential mortgage set to renew in the next 15 months, the impact of higher interest rates on mortgage renewals looms large. National Bank Financial economist Daren King warns that the interest shock is not over, representing a potential economic headwind in the coming year.
Rise in Household Borrowing
The latest StatCan report reveals a surge in seasonally adjusted household credit borrowing in Q3, primarily driven by an incresed demand for mortgage loans. Household borrowing rose to $24.5 billion, with $19.4 billion allocated to mortgage loans, marking a notable increase from the previous quarter. Despite a deceleration from previous years, this signals a renewed interest in mortgage financing.
Why You Should Contact Client First Mortgage Solutions
In summary, the Canadian mortgage landscape is undergoing significant shifts as interest rates rise, impacting both current homeowners and those set to renew mortgages in the near future. The implications for the economy remain a focal point as the nation navigates this period of heightened financial dynamics. It is always good to be informed, especially when it comes to your mortgage. Contact Us if you have any mortgage related questions.
Original Article – Canadian Mortgage Trends – December 14, 2023
