How Canada’s Recent Interest Rate Cut Affects Your Mortgage Renewal

Tips to Consider

PUBLISHED ON July 18th, 2024

The Bank of Canada recently lowered its interest rate by 0.25 percentage points, bringing the rate down to 4.75 percent. While this might not make a big immediate difference to your mortgage payments, the broader implications are significant, especially for those with upcoming mortgage renewals.

To delve deeper into these implications, Sutton CEO, Ross McCredie, shared his insights with BNN Bloomberg in a recent interview. For more information on how this rate cut affects mortgage renewals, keep reading.

What's Happening with Mortgage Renewals and Interest Rates?

A large number of Canadians have mortgages up for renewal soon—around $250 billion worth in 2024 and an even bigger $350 billion in 20251. Despite the recent interest rate cut, most people will see their mortgage payments go up, some by as much as 54%.

Steps to Take Before Your Mortgage Renewal

If your mortgage is up for renewal, here are five tips to consider based on your circumstances:

1. Talk to Your Mortgage Broker or Realtor Early: Start discussions at least 90 days before your mortgage is due for renewal. This gives you time to explore other options like switching your mortgage. A mortgage broker or realtor can give you honest advice and help you navigate your options.

2. Prepare in Advance: Don’t wait until the last minute. Banks often send out 'early mortgage renewal offers' as soon as 120 days before maturity, so starting early can give you a head start.

3. Extend Your Amortization Period: To lower your monthly payments, see if your bank will let you extend your mortgage's amortization period. While this might not completely offset the higher rates, it can help improve your cash flow.

4. Consider Your Options: Based on your unique circumstances, consider whether a short-term fixed rate or variable-rate mortgage is best. For many Canadian borrowers, three-year fixed term mortgages are the most favoured choice due to their competitive rates 2. However, for those with a higher tolerance for variability, variable-rate mortgages can be the best option. Whatever option you choose, make sure to evaluate your financial situation, risk tolerance, and future plans to ensure that your mortgage aligns with your long-term goals and provides the most benefits for your specific needs.

5. Speak to A Realtor: Real estate agents have extensive knowledge of the real estate market and often have a network of trusted mortgage brokers and lenders. They can provide insights into trends that might affect mortgage rates and property values, as well as refer you to professionals who can help you secure the best rate and terms.

Why This Matters

The recent interest rate cut is an attempt by the Bank of Canada to manage the economy, but many Canadians, especially those with variable-rate mortgages, will still feel the pinch. Those renewing their mortgages will face higher payments, adding financial strain, especially for low-to-medium-income households.

Looking Ahead

As Canada navigates this high-interest rate environment, having the right guidance and options for mortgage renewals is more critical than ever. Working with experienced mortgage brokers can provide valuable support and help you make informed decisions that align with your financial goals3.

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Sources

Canadian Mortgage Services. (2024, January 28). Mortgage Renewal Rates in Canada. Canadian Mortgage Services. Retrieved July 11, 2024, from https://cmsmortgages.ca/mortgage-renewal-rates-in-canada/
McLister, R. (2024, June 27). Fixed rates drop again; three-year mortgages remain biggest crowd-pleaser. Financial Post. Retrieved July 17, 2024, from https://financialpost.com/real-estate/mortgages/mortgage-rates/three-year-mortgages-crowd-pleaser-rates-drop
Green, K. (2024, June 11). Rate cut too little, too late to avoid consequences of Canadians' high mortgage renewals says experts, Bank of Canada data. The Hub. Retrieved July 11, 2024, from https://thehub.ca/2024/06/11/rate-cut-too-little-too-late-to-avoid-consequences-of-canadians-high-mortgage-renewals-say-experts-bank-of-canada/