Mortgage renewals and refinances ‘all round’ amid rate hikes

Written by
Laura Hanrahan

Mortgage renewals hit their highest level in two years as the number of home sales continues to fall, according to a new report from nesto found.

This change, according to the report, is largely due to the Bank of Canada’s interest rate hike. With two hikes already implemented and more expected throughout the year, current owners are “rushing to lock in low interest rates as they stand before another hike”.

Potential buyers, on the other hand, are hesitant to take on a new mortgage amid rising mortgage costs. Just over 55% of current demand comes from customers wanting to buy a new home, Nesto says, a notable drop from the 65% seen four months ago.

“In short, people are uncomfortable and worried about 1) the mortgages they currently have and 2) the mortgages they plan to get for a new home due to both the inflation and rising interest rates,” the report said. .

Toronto mortgage broker Paul Meredith says there are generally no fluctuations in the number of renewals because if a borrower is locked in for five years, they will renew every five years. But there are always exceptions.

“One thing I’m noticing an increase is people looking to renew early because they want to renew before rates go up,” Meredith said. co-CEO James Laird, on the other hand, says he hasn’t seen the increase happen yet, but it’s something he expects to see happen in a near future. And that doesn’t necessarily mean borrowers are renewing with their current lender.

“When I think about this question, I think of more people leaving their existing lender,” Laird said. “When rates are higher, we tend to see more people shop at renewal time, because when people get a renewal that’s equal to or less than what they’re currently paying, they’re more likely to say, ‘Okay, that looks pretty good.’ When prices are up, we expect people to shop around.

Laird says this tends to encourage lenders to be more competitive. And while borrowers can face a financial penalty if they choose to renew early, Meredith says depending on the situation, paying the penalty to get a better rate can end up saving the borrower money in the process. grand scheme of things.

Interestingly, despite rate hikes, homeowners renewing their mortgage are opting for a variable rate rather than a fixed rate. This is probably because although the rates of both types are increasing, they are not changing at the same rate. Since February, fixed rates have jumped more than 2% while variable rates have only increased by 0.95%.

“Fixed rates are due to continuous increases, while variable rates will take much longer to reach such high levels,” the report said. “For this reason, no matter what province you reside in, variable rates are always a great option for keeping mortgage payments low.”

Nesto expects this renewal trend to continue through the summer as more borrowers seek lower rates before it’s too late.

Meredith says he’s also seeing this trend with his clients, and he advises them to take variable rate now.

“That being said, the variable isn’t for everyone,” Meredith said. “Some people can’t handle the idea of ​​their payment changing without any control over it and that’s who fixed rate mortgages are best for.”

Laird agreed, saying that only if “someone has a higher tolerance for risk and rising rates aren’t going to knock them out at night and they can pay it back quickly, should they consider the variable” .

Nesto also surveys its customers to find out if they are “ready to buy” or “just looking”. Since the end of 2020, there has been a great imbalance between the two groups, with the overwhelming majority saying they were “just watching”. But that has now drastically reduced to nearly equal numbers. In April 2022, 52% of respondents said they only watch, compared to 48% who said they were ready to make a purchase.

“This shift is obviously tied to housing market news,” the report said. “While the news has set those who are ‘ready to buy’ on fire, it has deterred those who are in the early stages of the process.”

Written by
Laura Hanrahan

Laura has covered real estate in Toronto, New York, Miami and Los Angeles. Before coming to STOREYS as an editor, she worked as an urbanized editor in Toronto for Daily Hive.

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