Almost Half of Canadian mortgages up for renewal next year.

Bank of Canada has recently released a report on Canada's financial system and the risks presented to it. the full report can be found here.

Although there was a lot of interesting insight into the Canadian mortgage and debt situation of Canadians, the part which really stuck out to me was that 47% of Canadians are set to renew their mortgages within the next year. Expanding this out, 78% of Canadians will be renewing sometime between now and 2020.

On this there has been a lot of talk of the renewal shock, shouldn't be a surprise that interest rates have been creeping up over the last year. Thus at first glance, I bought the whole renewal shock argument.

I then started thinking back to about 5 years ago when I was underwriting 5 year fixed rate mortgages typically at about 2.99%. Fast forward to today and the local bank is advertising 5 year fixed rates of 2.84%, jumping on to "ratehub.ca" shows an even lower 5 year fixed rate of 2.69% currently.

Although I don't recall giving out many rates lower than 2.99% looking back at ratehub.ca - it appears that during the spring early summer of 2013 rates fell to a low of 2.64% before rising to a high of 3.68% (I do remember when this spike happened).

The end result is that through most of 2013 rates were on par or higher than rates are today. Taking a ceteris paribus approach that today's 5-year fixed rate will more or less stay constant through 2018 means that the 47% of Canadians renewing this year will be renewing at a similar if not lower rate than their current mortgage contract.

It is not until about the end of 2014, early 2015 that the 5-year rate dipped below current rates. That is if rates were just to stay constant, those renewing in 2019 and 2020 will likely see a higher rate on their renewal than they had on their previous contract. likely this will not be a problem though as these families have also likely seen their incomes grow over this time period.

All this to say, Although it is interesting that we have such a huge bulk of mortgages entering renewal in the next year, it may be much ado about nothing. likely many of these households will be renewing at contract rates similar to their previous, and thus unlikely to see a payment shock.

The potential problem that may arise - often renewals provided the financial institution with the time to re-visit clients finances, allowing the opportunity to up and cross-sell products or consolidate debt into the mortgage (push a 20-year term back out to 25 for example).

While the new rules coming into effect are not going to affect renewals - they will end up affecting any mortgage which is re-written. this means it will greatly inhibit the financial institution's ability to rework clients debt, or for clients to consolidate larger consumer debt into their house.

What are your thoughts on this report?

Is it that this massive 47% of mortgages coming up for renewal over the year is a cause for concern or just business as usual?

Feel free to comment below.