High interest rates have borrowers anxious about their mortgage renewal. What can they do?

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After a series of rate hikes, many of Canada’s variable rate mortgage holders are feeling the pain, and fixed-rate borrowers aren’t faring much better.

According to a recent study conducted by the Angus Reid Institute, 30% of Canadian mortgage holders—and 51% of those with a variable rate—are having a “tough” or “difficult” time financially.

Furthermore, more than three-quarters are worried about the additional costs they may have to manage when it comes time to renew, including more than 90% who have 25 years or more left on their amortization schedule. Even among renters—many of whom fear they will end up shouldering the burden of their landlords’ interest rate hikes—nearly half say they are concerned about the rising cost of borrowing.

With the Bank of Canada’s prime rate expected to remain at its current level of 4.5%—18 times higher than where it was in early 2022—for the remainder of the year, mortgage brokers say they are fielding more calls from worried clients.

“There is definitely concern from clients coming to that phase who are looking for guidance as to what is going to happen to rates in the next 18 to 24 months, which is challenging to provide because a lot of it is based on data that hasn’t come out yet,” said Karen Matthey, a mortgage agent level II, and co-owner of Kingston, Ontario-based The Mortgage Professionals.

Knowledge is power—and leads to better sleep

Matthey says clients nearing renewal often ask her questions that not even the Bank of Canada’s governor could answer regarding the future of interest rates. Instead of trying to predict the unknowable, Matthey says she looks to steer the conversation towards those things that are within the borrower’s control.

“Where I think mortgage brokers have a very good role to play here is, knowledge is power, and educating your client about what’s happening—why rates shifted, what the mechanism behind them going down is—allows them to be in a better, more educated position as to what’s happening,” she said. “It does not alleviate all of the anxiety, but there is some degree of comfort in having a better understanding of the mechanics behind what is happening.”

David Larock, a Toronto-based broker with Integrated Mortgage Planners, adds that many clients forget or aren’t aware that their principal on renewal is lower than the amount that they started with, thanks to the equity they’ve built.

“In a lot of cases, people call me and they’ve been losing a lot of sleep about it, but once we crunch the numbers it’s not as bad as people feared,” he said. “Yes, rates are higher, but you’re renewing a mortgage balance that has five years worth of principal pay down; that is a natural mitigant, and that helps cushion the blow of higher rates.”

Start with the low-hanging fruit

If, after seeing how higher interest rates will affect them upon renewal, clients are still concerned, Larock advises brokers to start with some of the more common strategies for reducing payments, such as extending amortizations for qualified borrowers.

“The other thing we always do is we look at the outside debt that the borrowers have; If they have unsecured credit card debt or unsecured lines of credit, many times we consolidate that debt into the mortgage, and that lowers the payments,” he said. “A mortgage of 5% is a lot higher than a mortgage rate of 2%, but it’s way better than a credit card rate of 20%.”

Look at the whole picture

The Angus Reid survey also found that Canadians are cutting down their spending in other areas to help manage higher interest rates and housing costs. According to the study, two thirds have cut back on discretionary spending in recent months, and almost half are delaying major purchases, such as a car, home or major appliance.

Helping clients find room for bigger mortgage payments within tighter household budgets is one of the ways mortgage brokers can prove their worth, says Sherry Corbitt, a level II mortgage broker with Mortgage Architects.

“Mortgage brokers who help their clients with resources or a referral partner who is a financial planner or a money coach—I think that will be a service add that will be important and valued and appreciated from clients,” she said.

“Don’t just look at the mortgage, look at [the] whole picture of the financial health for your clients,” she added. “We say we do that—now actually do it.”

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