'Gut wrenching feeling': Windsor homeowner realizes his interest rate could double

Windsor: Impact of higher rates on tenants A look at the trickle down effect of higher interest rates on tenants in Windsor-Essex. CTV Windsor's Ricardo Veneza reports.

More than two million Canadians will renew their mortgages over the next year-and-a-half. CTV News asked more than 50 mortgage brokers across Canada how to get the best mortgage deal. This is what we found.

Homeowners riding the wave of low-cost mortgages are set to come crashing into a reality of higher rates as millions of terms come due for renewal over the next few years in Canada.

The Canada Mortgage and Housing Corporation (CMHC) reports roughly 2.2 million mortgages will come up for renewal in 2024 and 2025, while a Royal LePage report released in Oct. 2023 indicates 3.4 million Canadians have a mortgage set to renew by March 2025.

“I kind of had a bit of that gut wrenching feeling,” said Tom McCormick, a homeowner and budding real estate investor in Windsor, upon realizing his interest rate was likely to double.

McCormick bought his first home in 2020 and converted the single-family house into a duplex.

“It was pretty rough,” said McCormick, recounting the renovations he undertook. “There was structure work that had to be done. The exterior needed to have a whole face lift. The porch was dilapidated.”

McCormick secured a mortgage with an interest rate less than 2 per cent. When he renews this fall, he is likely looking at a much higher rate.

And that could add as much as another $1,500 to his monthly payment, by his own calculation.

In his situation, that is likely to trickle down to his tenants.

“I’ll probably only raise about a hundred dollars or so, just to make sure it takes care of all the utilities,” said McCormick.

Rising mortgage costs

Paying for a mortgage in Windsor has gotten more expensive on average over the last two years.

CM data show the average monthly mortgage spend at the beginning of 2019 was roughly $1,100. Since, it has climbed to more than $1,800 a month as of 2024.

That’s in lockstep with the Bank of Canada key lending rate, which has climbed from 1 per cent in April 2022 to 5 per cent today.

Navigating the mortgage market

Bekim Merdita, the executive vice president of Rocket Mortgage Canada, calls the number of renewals the “largest in Canadian history” and stresses it requires proper planning from mortgage holders – not panic – to navigate the turbulent waters.

“I think the biggest thing that most people are trying to do right now is understand what the level of payment shock is going to be on their mortgage,” said Merdita, in an interview with CTV News from the company’s location in downtown Windsor.

While delinquency rates have begun to trend upward over the past couple of years, Merdita points to “extremely low” default rates as a sign of market strength and confidence in Canadians’ track record of paying the mortgage.

“Canadians love their homes and Canadians want to stay in their homes,” said Merdita. “If you think about it from a planning perspective, it’s one cycle of interest rate inside of a 25-year or a 30-year mortgage amortization and most people can afford it if they plan properly.”

For mortgage brokers like Sasha Syed of Mortgage Suite in Windsor, those in line for a renewal need to start mortgage shopping six months to a year out from their renewal date to secure the best mortgage product.

“A lot of my calls right now are out to people who are out for renewal in 2025 and just letting them know it’s important to get ahead of it,” said Syed.

For those unable to qualify for a traditional mortgage through a bank or credit union, private lenders fill the gap – often at a higher cost tied to higher risk.

Syed points to this cohort of mortgage holders as a group in need of careful financial scrutiny.

“A lot of stuff I’ve seen is people calling in that they need to get out of a private mortgage,” said Syed.

The Financial Services Regulatory Authority of Ontario (FSRA) calls the products “short-term” solutions that may be getting even more expensive upon renewal amid higher rates.

Responses to CTV News' Mortgage Broker Questionnaire

Broker Name:  Bekim Merdita

Broker Company:  Rocket Mortgage Canada

Note:  All questions are based on a typical Canadian household renewing a mortgage.

Question #1:  What is the best type of mortgage to have right now?

Fixed mortgages in the 1 to 4 year range are the most common selections right now making up for approximately 72% of all mortgages currently according to CMHC. Variable and fixed mortgages have been less popular since the Bank of Canada started signaling future rate cuts. We’re recommending 1, 2, and 3 year terms for most clients right now because they provide a lower rate than a variable and have the advantage of being able to capture the potential for a lower rate cycle in the years to come.

Question #2:  What is the best rate you can get right now?  (Specify rate and term length)

Question #3: Should I get out of my variable mortgage if I have one?

An individual’s goals are the primary driver of the right mortgage product. There is no right answer for everyone. There is only what’s best for that individual or family right now based on what they’re trying to accomplish. If a homeowner has a high likelihood of breaking the mortgage inside of the term, then often a Variable mortgage is the appropriate solution because variable rate mortgages usually have lower penalties than fixed rated mortgages.

Question #4: Should I opt for a longer amortization period?

“It depends” is also the right answer here as the mortgage must fit the client’s specific financial situation and goals. For many clients right now, extending the amortization of the mortgage is a good solution for reducing the monthly payment brought on by a lower amortization. If one’s goal is to pay off the mortgage faster and they have the budget to do so, then reducing interest cost especially with rates being where they’re at today is a good financial strategy.

Question #5: Can I trust a bank for mortgage renewal advice?

It is always a good idea to check with multiple sources for mortgage advice. The advantage to working with a mortgage broker is that a good broker will help a client understand all their options for renewal. Banks typically only offer their products whereas brokers can shop the market for the best rate and product for a client’s unique financial situation.

Question #6: What piece of advice would you pass on to anyone looking to renew their mortgage?

The best thing to do to avoid any form of surprise at the time of renewal is to start your research early before the renewal date. We recommend that clients reach out to a licensed mortgage broker like Rocket Mortgage Canada approximately four months prior to their renewal date so they can understand all their options and compare it against the renewal offer of their current lender. A great mortgage broker will provide honest and timely advice that empowers clients to make the best financial decision for themselves.

Responses to CTV News' Mortgage Broker Questionnaire

Broker Name:  Sasha Syed

Broker Company:  Mortgage Suite

Note:  All questions are based on a typical Canadian household renewing a mortgage.

Question #1:  What is the best type of mortgage to have right now?

I think a 5 year fixed is a good choice right now. Insured/insurable rates are under 5% and a fixed rate offers stability for the times we're facing now with increased inflation.

Question #2:  What is the best rate you can get right now?  (Specify rate and term length)

4.69% for a 5 year fixed rate insured and 6.15 for a 5 year variable rate.

Question #3: Should I get out of my variable mortgage if I have one?

I think if homeowners are feeling straing from a high variable rate mortgage, it woul dbe worth reaching out to the lender and finding out if they qualify to move to a fixed rate with a lower payment.

Question #4: Should I opt for a longer amortization period?

I would encourage staying with a 25-year amortization period. The borrower pays much more interest over the term.

Question #5: Can I trust a bank for mortgage renewal advice?

I think borrowers can trust their banks for advice. I think the borrower has to initiate the conversation with their bank. I find most people I speak with don't hear from their bank or lender very often when there are market and rate changes.

Question #6: What piece of advice would you pass on to anyone looking to renew their mortgage?

My advice would be to have your mortgage and credit reviewed 6-12 months before the renewal date. If a borrower wants to switch lenders for a lower rate than the renewal offer rate might be from the current lender. They have to qualify to switch. Having the time to address any credit issues like, high credit card balances, etc. The time allows the borrower to pay it down and shop the rate..

Responses to CTV News' Mortgage Broker Questionnaire

Broker Name:  Duncan Wilson

Broker Company:  Mortgage Suite

Note:  All questions are based on a typical Canadian household renewing a mortgage.

Question #1:  What is the best type of mortgage to have right now?

Currently based on the economy and the situation with interest rates there are too many variables to say sure that a variable rate mortgage would go up or down. Also, variable rate mortgages are not truly variable anymore. The mortgages presumed that are variable are adjustable-rate mortgages. Adjustable means they adjust up or down with the interest rate. As such, renewal rates are high on these mortgages as they are being re-rated for the new rate in the market. Many banks have held off on this adjustment to ease market concerns. In my opinion, fixed would be a good the best way to go. It allows the borrower to understand their payment and keeps their affordability in line. Recently shorter terms have become competitive. In essence, a borrower can choose to play the market within 2, 3, 4, 5, 7, 10-year terms depending on the payment. That way there is no adjustments to their payments within the term they choose. Variable rates always have beaten the fixed rate if you look at past historical data; but the past is not indicative of the future as our market changes.

Question #2:  What is the best rate you can get right now?  (Specify rate and term length)

This truly depends on the discount you can obtain on the variable. Currently the discount on adjustable rates are -.90 to 0. Meaning you can obtain a zero discount making your rate PRIME at 7.20%. There are other lenders that go as low as .90 off of prime. Making your rate 6.30%. Now there are lenders offering -1.10 on good credit. Fixed rates and adjustables depend on credit. For fixed rates these are easier to explain. Fixed rate on prime mortgages are about 4.70% or higher. Fixed rates on B lending (bruised credit) range from 5% to 7%. Fixed rate on the private side and MIC side range from 7% to 12%. Typically, Private and MIC terms are one year long. Additionally, if you are looking for best rate you would be looking to make your mortgage insured or insurable. This is a whole other discussion and depends on the equity in your home at time of renewal, or at purchase closing time.

Question #3: Should I get out of my variable mortgage if I have one?

This depends on risk appetite, type of tenure ( rental or owner occupied). If you are occupying the propery and have low risk please take a fixed rate and look at your term. Discuss future plans with your Mortgage Expert to determine what your future looks like ( eg. Kids school, moving, retirement etc. ) Many rentals remain in adjustable rate mortgages due to the penalty being only 3 months to break the term. This is an advantage if you are looking to sell off the rental mid term.

Question #4: Should I opt for a longer amortization period?

Again, this is truly looking at the perspective of the borrower. Can they afford the payment. Could they use a bit of debt mortgage payment relief. In order for some mortgages to obtain a lower payment they would need to refinance and change the "charge terms." Currently, the government is working on a mortgage charter that requests banks to work with borrowers who cannot afford their current payment and allow for extended amortizations on their current mortgage without changing the charge terms. For other borrowers that can afford their payments I typically build them a “mortgage payoff plan”. I look at the extra money they have available at the time of renewing or changing their mortgage and make them stick to a plan. Sometimes borrowers want to know they will pay their mortgage off in 15 years so we make a plan based on this. Sometimes it would be built into their prepayment plans or allowable principal prepayment plan. If many of the borrower planned out their prepayments many of them would not be feeling this payment shock that they feel now. Many of them felt that their payment was great because their rate was 1.79%. If they discussed the plan and looked at their prepayment privileges they could have taken true advantage of the balance, and brought it down before rates increased. Again a mortgage is no longer let me choose and forget. They are a financial instrument that allows them to obtain home ownership. This financial instrument needs to be review every year or so.

Question #5: Can I trust a bank for mortgage renewal advice?

Blind trust – no. Do you as a borrower feel like your bank branch has done all it can? There are some professionals doing mortgages in branches at banks that have been doing mortgages for many years. They are awesome at them. I would send my deals over sometimes and have competed on a professional level with these individuals. However, other branch bank employees are brand new. They have just started their career and don’t know a thing about mortgages and what to do. I know this because I was one of them. I began writing my first mortgage when I was 18 years old. Yes, I screwed it up. I had my branch manager involved with me to help. Truly, I did these clients a disservice by saying I knew it all. If you trust the person and you feel you are getting good advice then you are getting good advice. The bank offers one product in a box, versus a Broker who offers many different lenders. We are one in the same. We get paid by the lender just like a branch bank does and there are no fees for advice or performing the mortgage for the prime borrower.

Question #6: What piece of advice would you pass on to anyone looking to renew their mortgage?

If you trust your bank branch, mortgage specialist, mortgage agent, mortgage broker, or mortgage professional that is performing a renewal for you this is good. There is proof of their work. Ask them to see where they have submitted your file. It all comes down to a gut feeling – the feeling that “could I get something better”. There are lots of mortgage professionals that will show you why you are renewing with the current lender. Why you must move your mortgage due to rate being better. All this math can be disclosed on a spreadsheet. My biggest word of advice is timing. When you get your renewal in the mail it typically comes three months out from the date of your renewal. Shop around, or ask your original mortgage professional what can be done. This is free to find out what better deal you can get. Compare rate with the professional. Do not go online as many of the rates here are flashy rates to lead you in. Always discuss with someone that you can meet with in person or virtually. Build a plan now for your mortgage don’t just take what you are getting. Right now b lenders for instance are renewing borrowers rate upwards of 6% higher. Meaning, the borrower obtained 3.9% and now receiving a renewal notice of 9%! This definitely is not right and I would chat with a professional to refinance or transfer to another lender. At renewal there are four options:

Responses to CTV News' Mortgage Broker Questionnaire

Broker Name:  Rasha Ingratta

Broker Company:  Mortgage Intelligence

Note:  All questions are based on a typical Canadian household renewing a mortgage.

Question #1:  What is the best type of mortgage to have right now?

In our current market landscape, where interest rates are on a downward trend, opting for a variable rate mortgage offers flexibility and potential benefits. With a variable rate mortgage, you have the advantage of being able to lock in at any time without incurring penalties. This not only provides security but also makes negotiations with lenders smoother, as any associated penalties for transitioning to another lender is minimal.

Question #2:  What is the best rate you can get right now?  (Specify rate and term length)

Question #3: Should I get out of my variable mortgage if I have one?

Given the current favorable interest rate environment, I'm advising clients to maintain their variable rate mortgages at least until the end of this year. We're actively monitoring market fluctuations, akin to an investor overseeing their stock portfolio.

Question #4: Should I opt for a longer amortization period?

When considering amortization periods, the choice between longer or shorter terms depends on the client's financial objectives. A longer amortization period can alleviate immediate budget constraints, while a shorter one aligns with goals for accelerated mortgage repayment.

Question #5: Can I trust a bank for mortgage renewal advice?

Approaching mortgage maturity, it's important to engage with your existing lender to discuss renewal terms, options, and conditions. Comparing offers from various lenders ensures you secure the most favorable terms available. While trust is essential, prioritizing the terms offered ensures financial common sense. As a mortgage broker, part of my role is conducting thorough comparisons and due diligence to present clients with the best options and align them with their financial goals.

Question #6: What piece of advice would you pass on to anyone looking to renew their mortgage?

To streamline the renewal process, it's advisable to explore options approximately 3-6 months before the mortgage's renewal date. This allows ample time for research, comparison, and seamless transition if a better rate elsewhere is identified. Waiting until the last minute may necessitate renewing into an open mortgage if switching lenders, potentially incurring penalties if not renewed into an open mortgage. Therefore, early preparation is key to securing favorable terms and avoiding unnecessary costs.

Responses to CTV News' Mortgage Broker Questionnaire

Broker Name:  Rob Zanet

Broker Company:  Indi Mortgage Solutions

Note:  All questions are based on a typical Canadian household renewing a mortgage.

Question #1:  What is the best type of mortgage to have right now?

A fixed rate mortgage is the best suited in today’s environment because it is priced much less than variable rate mortgages. Although the 5 year fixed is priced better, the most popular term is a 3 year fixed because it will give the mortgagor the opportunity to move it into a lower priced fixed or variable rate mortgage in a few years once the economic uncertainty and higher rates level off.

Question #2:  What is the best rate you can get right now?  (Specify rate and term length)

Question #3: Should I get out of my variable mortgage if I have one?

If you have been carrying a variable rate all along you should just stick with it, as the variable rates are expected to start declining by the end of this year or next year. The decline will take much longer and you won’t see prime falling below 5% for a few years.

Question #4: Should I opt for a longer amortization period?

Amortizations longer than 25 years are only allowed on Refinances or Uninsurable Purchases. With the cost of goods and services in today's world, if you are finding it hard to make ends meet, extending your amortization is an excellent way of trying to balance your budget.

Question #5: Can I trust a bank for mortgage renewal advice?

The banks will always offer a renewal at their posted rates hoping that the clients will just sign the renewal and not question the rate. You should always contact a mortgage broker to see what the best rates are and if there are better rates available you should consider doing a No Fee transfer to the best rates out there. Remember that your bank only lends within their lending parameters and mortgage brokers have many more options.

Question #6: What piece of advice would you pass on to anyone looking to renew their mortgage?

Don’t just sign the renewal. Contact a mortgage broker and see what the best rates and options are for your situation.