Canadian banks are expressing confidence that the upcoming renewals for approximately 14% of mortgage holders this year will not lead to financial distress or a surge in defaults, despite anticipated interest rate hikes. CEOs of major Canadian banks assured the public that customers are well-positioned to handle the increased costs, with the expectation that, on average, they may pay around C$5,000 ($3,700) more per year. The executives highlighted Canadians’ accumulated savings, rising wages, and their willingness to trim discretionary spending to safeguard their homes.
Speaking at a conference hosted by RBC Capital Markets in Toronto, the bank CEOs maintained a cautious outlook on the Canadian economy while projecting a potential decline in interest rates later in the year. This anticipated decrease would favor the majority of mortgage holders whose loans are set for renewal in 2025, 2026, or thereafter.
Royal Bank of Canada CEO Dave McKay expressed his expectation that interest rates would significantly decrease by 2025 and 2026. In the meantime, he noted that customers who have already experienced renewals have managed to absorb higher monthly costs, a trend likely to continue this year. McKay projected an average mortgage holder in Canada to face a roughly C$400 payment increase for 2024, a level similar to the previous year, which borrowers navigated successfully.
Bank of Nova Scotia CEO Scott Thomson anticipated increases of C$400 to C$500 a month for his clients, while Victor Dodig, CEO of Canadian Imperial Bank of Commerce, suggested potential hikes ranging from C$300 to C$700.
Despite the anticipated adjustments, Dodig emphasized that homeowners often weigh the costs of increased mortgage payments against the expenses associated with selling a home, such as legal fees and moving costs, which could range from C$50,000 to C$60,000 for a C$1 million property.
Canadian mortgages typically have five-year terms, with about 24% of home loans from major banks expected to be up for renewal next year. In 2026, approximately 35% of mortgages are due for renewal, with an expected decrease in interest rates by that time.
Analysts from RBC Capital Markets acknowledged a lower level of concern about mortgage renewals due to the implied downward trend in interest rates. The CEOs also offered forecasts on when the Bank of Canada and the U.S. Federal Reserve might start lowering interest rates, suggesting a potential decrease starting around the middle of the year.
