From ultra-low interest rates that led to a huge spike in real estate demand(opens in a new tab) to the speed with which interest rates shot up to levels not seen in a generation, it's been hard to keep up with the shifting landscape for mortgage holders.
Now, with interest rates increasingly expected to stay higher for longer, many of the homeowners who locked in low rates years ago are likely bracing themselves for financial pain as their mortgage comes up for renewal.
"Each month that passes, roughly two per cent of mortgage holders face renewal at sharply higher interest rates," Royce Mendes, managing director and head of macro strategy at Desjardins, wrote in a Sept. 19 note to clients.
regulator, warned in September that this category of borrowers, which total about $369 billion of the $2.1 trillion of outstanding mortgage market, are "at risk of suffering a significant payment shock," and that he hopes to see the option offered less.
Given the steep rises in payments, banks and other lenders have been responding in part by stretching out amortizations to reduce monthly payments.
More than 46 per cent of Canadian mortgages had payment schedules longer than 25 years as of the second quarter, according to the Bank of Canada, an amount that's been steadily rising from around 32 per cent in the summer of 2020.
Many mortgage amortizations at Canada's biggest banks now stretch past 30 years, from 24 per cent of mortgages at RBC to 30 per cent at BMO, with the vast majority going beyond 35 years. CIBC and TD Bank fall somewhere in between those two, while Scotiabank is notable for only having one per cent of mortgages run past 30 years.
The banking regulator has also been raising concerns about these extended mortgage terms, which slow how quickly people build equity in their home. Lenders in turn have also been looking to reduce lengthy mortgages, with most reporting last quarter that they had knocked a percentage point or two off their total of 30-year plus mortgages.
As extended amortizations fall out of favour, borrowers may have to come up with a lump sum or increase their monthly payments to bring their loans back in line, which the regulator suggests as the preferred options.