Experts Say Payment Shock is Coming For All Canadian Mortgages
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Experts Say Payment Shock is Coming For All Canadian Mortgages
1 Big Thing
Mortgage renewal can be a source of excitement and anxiety, leading to significant changes in financial responsibilities. With rising interest rates, the Bank of Canada has expressed growing concern about Canada’s financial markets and households’ ability to manage their debt. These challenges will affect mortgage holders, lenders, and the banking industry.
Why It Matters
The BoC’s 2023 Financial System Review highlights the issue of household debt and borrowers’ ability to handle their financial responsibilities. As interest rates rise, the Bank closely monitors the potential impacts on mortgage holders. The primary focus is to ensure that households can sustain their debt and avoid imminent financial strain.
Mortgages Require More Income to Qualify
In 2022, the median debt-to-income coverage ratio (DCR) on new mortgages significantly increased, rising from 16% to 19%. These ratios are the highest level seen in at least a decade. There was also a notable increase in the proportion of new mortgages, exceeding 25%, climbing from 12% to 29%.
What’s Next
By the end of 2026, all mortgage holders can expect an increase in their mortgage payments. The exact amount of the increase will depend on the type of mortgage and the interest rate obtained previously. Most fixed-rate mortgages will be renewed by or before 2026, resulting in a projected 20% to 25% increase in payments.
The Bottom Line
With the increase in mortgage rates, borrowers may face a significant rise in their monthly payments at the time of mortgage renewals. Borrowers must be aware of the potential impact on their financial situation and take proactive measures to manage the possible shock of increased payments. Borrowers can confidently navigate the renewal process by being informed about their expected payment increases, considering alternative mortgage options, and seeking guidance from nesto’s mortgage experts.
Consult nesto’s mortgage payment shock calculator to learn how much to budget for your upcoming mortgage renewal and ways to manage your payment shock.
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