A significant percentage of Canadian mortgages are coming up for renewal in 2024.
Considering the low mortgage rates we’ve enjoyed for the last few years, clients are in for a bit of shock with where rates are now. Although the Bank of Canada held its prime rate steady with the last rate announcement, we are starting to see fixed rates trend down which is a relief.
Meanwhile, a significant change has been rolled out with how lenders are qualifying clients who are doing switches at renewal time (no new funds added). With the implementation of the stress test in 2016, we had to start qualifying clients at their “contract” rate (the interest rate the lender was offering) plus 2%, or the Bank of Canada “benchmark” rate, whichever was higher.
When mortgages that were in place prior to the new rules came up for renewal, we could qualify them at the contract rate or the benchmark rate, whichever was higher. Mortgages put in place after 2016, have come up for renewal for two years now and those clients were disadvantaged by the stress test calculation for switches at renewal time.
Many lenders have now adopted the recent change to the policy and we are again able to qualify clients at their contract rate or the benchmark rate, whichever is higher, without adding the 2% buffer to the contract rate.
Several clients I chatted with prior to the change were essentially stuck with what their current lender offered them for their renewal because they did not qualify anywhere else when we used current rates plus the 2% calculation.
Another positive note is what we are seeing with fixed-rate mortgage products.
Traditionally, I see lenders offering rate specials through November and December, during the slightly slower winter months and then popping rates up a bit as we start the new year. This year seems no different.
Over the last two weeks, I have seen rate reductions almost every day.
As a broker, one of the things I do for my clients is watch what interest rates are doing. When I am working with clients who are buying a home or refinancing, I choose lenders that are willing to continue to reduce my clients’ interest rates up until (shortly before) their closing date, if the lenders drop their posted rates.
What can that mean in dollars and sense?
Two years ago, some of my favourite clients were upsizing and buy a new home in Kelowna. Their new mortgage was going to be $700,000. Three weeks before their closing date rates started to drop. Three times the lender reduced its rate, so at closing time, its rate were 0.25% lower than the contract my clients originally signed. The lower rate meant a savings of $7,900 over their five-year term.
If you have a renewal coming up during next four months, I suggest looking into your options before we move into the new year. You should be able to have an interest rate held for 120 days, which will provide some stability should rates trend up again once we are into the new year.
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.