When we look at the figures, one conclusion is clear: the increase in monthly payments that people will have to make when renewing their mortgage will translate into less spending elsewhere. And it has already started.
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“We have had figures which show that people are cutting back a lot on discretionary spending such as restaurants, hotels and travel. This is what is being suffered at the moment,” says Jimmy Jean, chief economist at Mouvement Desjardins. “Anything that is discretionary, like going out and going to shows, it slows down,” he says.
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The issue of mortgage renewals weighs on economic activity and the purchasing power of households. Anxiety and uncertainty are increasing, and everyone must make sacrifices in their budgets.
In the country, 60% of mortgage loans will have to be renewed over the next three years, according to RBC. And several bank executives have said that customers who renew should expect to pay an average of $5,000 more per year.
The mortgage bomb in figures
All variable rate borrowers (those whose payments vary as interest rates change) have already experienced payment increases, with some seeing their payments increase by more than 50%
(Bank of Canada)
Adjustable-rate mortgage borrowers with fixed monthly payments will need to increase their payments by an average of 40% to maintain their original amortization schedule.
(Bank of Canada)
Quebec will fare better
Quebecers, however, have an ace up their sleeve, according to Jimmy Jean. On the one hand, debt is lower here than in the rest of Canada. And since the Quebec population is relatively older, the beautiful province has more people who no longer have a mortgage and who are not affected by the coming mortgage shock.
“There are a lot of people who are advanced in their mortgage payment and have five or 10 years left to pay off their house. They are not worrying customers. Those who worry us are the young borrowers who participated in the bidding war during the pandemic, they are more vulnerable.
The rate cut that everyone expects in 2024 should also give homeowners some relief. “But all owners should expect to suffer a shock nonetheless,” warns the economist.