If you had a mortgage since before the Bank of Canada started hiking rates in March 2022, chances are you will be facing a payment increase before the end of 2025.
That’s according to a new research report from the Bank of Canada, which estimates that 80% of those borrowers will be subject to a “relatively large” mortgage payment increase by then.
It adds that about 45% of borrowers who had a mortgage prior to March 2022 have already seen their payments increase.
Based on current market expectations that interest rates have peaked but will remain above pre-pandemic levels, the Bank of Canada researchers expect the median monthly mortgage payment will rise from $1,200 in February 2022 to $1,600 by the end of 2027—a 34% increase.
“But as financial markets expect interest rates to begin decreasing in 2024, payments also moderate slightly by the end of 2027,” the report reads. However, if interest rates remain at their October 2023 levels for an extended period of time, borrowers would instead face an estimated 44% increase in their payments.
Impact on fixed-payment variable rate borrowers
Increases are expected to be even higher for those with a fixed-payment variable rate mortgage.
While their payments will remain the same throughout the term of the mortgage (unless they reach their trigger point and are required to take action sooner), those borrowers will face a steeper rise in their payments at renewal, which for many will take place in 2026 and 2027.
“…the median payment for this mortgage type increases sharply in those years, reaching $2,190 by the end of 2027—an increase of 54% from the February 2022 level,” the Bank says.
The Bank of Canada report does note that its estimates likely overestimate the size of payments at renewal since its scenario assumes all borrowers will renew into the same type of product. It also assumes borrowers will take no action, such as refinancing or making prepayments, prior to their renewal, but acknowledges some are likely to do so.
Ability to handle payment increases will depend on income growth
The research goes on to say that borrowers’ ability to handle these payment increases will depend largely on their income growth over the remainder of the term.
In a scenario that assumes no income growth, the mortgage debt service ratio—or mortgage payments as a share of pre-tax income—would increase by four percentage points for all mortgages outstanding, rising from 16% in February 2022 to 20% by the end of 2027.
However, assuming income growth of 2.4% per year, which is the average growth rate according to Statistics Canada from 2014 to 2023, the MDSR would increase by just 1.5 percentage points.
“As long as they continue to experience income growth, most mortgage borrowers will not face severe financial stress from the increase in mortgage payments over the coming years,” the researchers say. “However, borrowers who stretched to enter the market or who were anticipating rate decreases by the time of renewal may find the adjustment more difficult.”
A severe recession that led to a sharp rise in unemployment would also “challenge the ability” of many borrowers to make their payments.
“This could lead to credit losses for lenders if mortgages exceed property values,” the report says. “In turn, it could also tighten lending conditions, making it more difficult and expensive for Canadian households to access credit.”
Current mortgage market statistics
The report also provided some interesting mortgage market stats. Here are some of the highlights:
- Borrowers with true variable rates (e.g., adjustable-rate mortgages where payments rise and fall based on changes to the prime rate) have already seen their median payments rise 70% as of November 2023 compared to the end of February 2022.
- Variable rates with fixed payments (VFMs) are more common, comprising about 75% of variable-rate mortgages.
- Up to 80% of VFMs at federally regulated lenders had reached their trigger rate, meaning the interest rate comprises the entirety of the mortgage payment.
- Based on lender-specific policies, at most one-quarter of VFMs have reached their trigger point and been subject to a mandatory change in payment. This is because some lenders, like RBC, require borrowers to increase their mortgage payment as soon as they reach the trigger rate, while others—like TD, BMO and CIBC—allow the interest shortfall to be added to the balance of the loan up to a certain threshold.
FAQs
Based on current market expectations that interest rates have peaked but will remain above pre-pandemic levels, the Bank of Canada researchers expect the median monthly mortgage payment will rise from $1,200 in February 2022 to $1,600 by the end of 2027—a 34% increase.
How much have mortgage rates gone up in 2022 Canada? ›
Starting March 2022, the BoC began its rate hike spree to curb inflation so by the end of that year, the bank's interest rate had risen to 4.25%. After a series of 10 rate hikes, Bank of Canada's key interest rate recorded a peak of 5% in July 2023.
Have Canadian real estate prices climbed faster than mortgage payments? ›
Canadian Home Values Climbed Faster Than Mortgage Payments
Since Q1 2020, the average payment has climbed a mind-blowing 27.7%. In contrast, the price of a typical home climbed 28.5% over the same period—about 0.8 points faster.
What will the mortgage rate be in early 2022? ›
Thanks to sharp inflation growth, higher benchmark rates, and a drawback on mortgage stimulus by the Fed, mortgage rates spiked in 2022. According to Freddie Mac's records, the average 30-year rate jumped from 3.22% in January to a high of 7.08% at the end of October.
What is the trend in Bank of Canada mortgage rates? ›
Forecast of Lowest Mortgage Interest Rates as of July 19, 2024
| Date | BoC Rate | Prime Rate |
|---|
| 2024-12-31 | 4% | 6.2% |
| 2025-06-30 | 3.5% | 5.7% |
| 2025-12-31 | 3.25% | 5.45% |
| 2026-06-30 | 3% | 5.2% |
9 more rowsIn October 2022, the 30-year rate breached 7 percent but settled back into the 6 percent range for the first half of 2023. By July 2023, rates had reversed course, and by October, the 30-year broke through 8 percent.
What is the average mortgage payment in Canada 2022? ›
Canadian Average Mortgage Payment
| Year | Canadian Dollars |
|---|
| 2019 | 1,322 |
| 2020 | 1,322 |
| 2021 | 1,382 |
| 2022 | 1,459 |
2 more rowsJan 10, 2023
What Is the Highest Mortgage Interest Rate in History? The highest mortgage rate in Canadian history was 21.75% in August 1981 for a 5-year fixed mortgage. This rate stayed at this all-time high until October 1981 before decreasing rapidly over the following months.
Are Canadians with mortgages about to see payments soar? ›
For those mortgage holders, the steepest rise will occur in 2026, with the median monthly payment rising by more than 60 per cent, according to bank estimates. In 2025, the median increase is more than 50 per cent; this year, about 30 per cent.
Why doesn t Canada have 30 year mortgage rates? ›
This is primarily because CMHC only offers mortgage default insurance coverage for mortgages with a maximum amortization period of 25 years. Essentially, it's not that you can't get a 30-year mortgage; it's just much harder to do so without a large downpayment.
Will mortgage rates ever be 3% again? A few years ago, homebuyers could take out home loans with rates between 2% and 3%. Mortgage rates will fall over the next year, but they won't reach those levels. Housing market experts say it would take a significant economic crisis for mortgage rates to drop below 3%.
Should I lock my mortgage rate today? ›
Once you find a rate that is an ideal fit for your budget, lock in the rate as soon as possible. There is no way to predict with certainty whether a rate will go up or down in the weeks or even months it sometimes takes to close your loan.
What is today's interest rate? ›
Current mortgage and refinance interest rates
| Product | Interest Rate | APR |
|---|
| 30-Year Fixed Rate | 6.88% | 6.92% |
| 20-Year Fixed Rate | 6.69% | 6.74% |
| 15-Year Fixed Rate | 6.38% | 6.45% |
| 10-Year Fixed Rate | 6.32% | 6.39% |
5 more rowsWeekly national mortgage interest rate trends
| 30 year fixed | 6.86% |
|---|
| 15 year fixed | 6.32% |
| 10 year fixed | 6.28% |
| 5/1 ARM | 6.44% |
If you're on a discount or standard variable rate mortgage, it's likely that when the base rate rises, you'll see an increase in your mortgage payments too, but the specific amount is determined by your lender. The same applies if base rate decreases.
What is the interest rate forecast for the next 5 years? ›
Projected Interest Rates In The Next Five Years
ING's interest rate predictions indicate 2024 rates starting at 4%, with subsequent cuts to 3.75% in the second quarter. Then, 3.5% in the third, and 3.25% in the final quarter of 2024. In 2025, ING predicts a further decline to 3%.
How much did the mortgage rates go up? ›
The latest Bank of England base rate is: 5.25%. This is an increase of 0.25%, and was announced by the Bank of England (BoE) on 3 August 2023. From 1 September 2023 our: Base Mortgage Rate (BMR) will increase from 6.50% to 6.75%
When did interest rates go up in Canada 2022? ›
The central bank raised interest rates 10 times between March, 2022 and July, 2023, bringing its benchmark rate to 5 per cent from 0.25 per cent in one of the most aggressive monetary policy tightening campaigns on record. It has held the policy rate steady at 5 per cent over the past six rate decisions.
Where can I get 7% interest on my money? ›
Why Trust Us? As of July 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
Are mortgage rates trending up especially on 30-year fixed mortgages? ›
Rates have remained relatively high in 2024 as well. In May, the average 30-year fixed mortgage rate was 6.76%, which is just nine basis points down from the previous month, according to Zillow data. They've been trending similar so far in June. Overall, mortgage rates are expected to go down later in 2024.
