Homeowners brace for mortgage payment shock amid higher-for-longer rate outlook

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Borrowers with fixed rates are expected to see an average payment increase of between 14 per cent and 25 per cent next year compared with early 2022 costs, according to the Bank of Canada. In 2025 and 2026, payments should rise between 20 per cent to 25 per cent. Peter Routledge, head of Canada’s banking 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.

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.

Coming up with the funds could prove challenging for many though, as cracks start to show in credit markets. She said she's heard from clients who are surprised to learn just how high interest rates have climbed, especially since they have to pass the mortgage stress test if they want to switch lenders.“They have great credit, they have great income. But it's that qualification that pushes them into the alternative space.”

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