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Canadian mortgage holders can cope with loan renewals, banks say



As approximately 14% of Canadian mortgage holders gear up for loan renewals this year, the CEOs of major banks express confidence that the ensuing interest-rate hikes won't pose a significant threat to customers or trigger a surge in defaults.


During a conference hosted by RBC Capital Markets in Toronto, bank chief executives outlined their expectations. They indicated that customers might experience an average increase of around $5,000 (US$3,700) per year. Despite this, the CEOs emphasized that Canadians are well-positioned with savings, higher wages, and a willingness to trim discretionary spending to safeguard their homes.


While maintaining a cautious stance on the Canadian economy, the executives also predicted a later decline in interest rates, which could benefit the majority of mortgage holders renewing in 2025, 2026, or thereafter.


Dave McKay, CEO of the Royal Bank of Canada, expressed optimism that interest rates would substantially decrease by 2025 and 2026. In the meantime, he highlighted that customers who have already faced renewals have successfully managed higher monthly costs. For 2024, McKay anticipated an average increase of $400 in monthly payments for Canadian mortgage holders, similar to the previous year.


Scott Thomson, CEO of the Bank of Nova Scotia, anticipated increases ranging from $400 to $500 per month for his clients, while Victor Dodig, CEO of the Canadian Imperial Bank of Commerce, suggested hikes in the range of $300 to $700. Dodig emphasized that homeowners weigh the cost of mortgage payment increases against the considerable expenses associated with selling a home, such as legal fees and moving costs.


Canadian mortgages typically have five-year terms. In 2025, approximately 24% of home loans from major banks will be up for renewal, with the figure rising to about 35% in 2026 and 22% the following year. The CEOs conveyed reduced concern about these upcoming renewals, given the forward curve's implication that interest rates are expected to decrease.


RBC Capital Markets analyst Darko Mihelic noted a notable decrease in anxiety regarding mortgage renewals, attributing it to the forward curve's suggestion of declining rates. The CEOs also provided insights into their forecasts for the Bank of Canada and the US Federal Reserve, predicting a potential initiation of interest rate reductions around the middle of the year. Thomson estimated a 75 basis point drop, while Darryl White, CEO of the Bank of Montreal, forecasted a 100-basis-point decrease. McKay went further, expecting a 200 basis point decline by the end of 2025.


In conclusion, as Canadian mortgage holders approach renewals, banks are optimistic about their ability to navigate potential interest-rate increases, citing the financial resilience and strategic decisions of homeowners in the face of economic changes.


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