Surge in Global Bond Yields Hits Canadian Homeowners with Unexpected Mortgage Hikes

In Canada, five-year mortgage terms are standard, unlike the U.S.’s 30-year mortgages.

Around 75,000 Canadian homeowners are bracing themselves for significant interest rate hikes in their upcoming mortgage renewal notices.

This unexpected rise is attributed to the global bond yields surge, adding pressure to households already under financial strain.

In Canada, five-year mortgage terms are standard, unlike the U.S.’s 30-year mortgages.

Many Canadians who secured below 2% fixed-rate mortgages five years ago are now anticipating steep interest rate hikes due to the bond market dynamics.

Some homeowners might face renewed rates as high as 7%, potentially increasing their monthly payments by hundreds of dollars, say mortgage brokers.

Given the rising costs of living and increasing interest rates, Canadians are finding it harder to manage their debts.

This situation has prompted banks to set aside funds for potential loan defaults, impacting their overall profits.

Approximately C$200 billion ($146.36 billion) in home loans are up for renewal next year, leading experts to forecast more distressed property sales.

Daniel Vyner, a broker at DV Capital, commented on the rising concerns of homeowners about these renewals.

Historical data shows that five-year mortgage rates stood at 5.34% in November 2018, and three-year rates were at 3.59% in November 2020. These rates are determined by market trends at the time of renewal.

A significant surge in bond yields is anticipated to influence the November renewals.

The Canadian 5-year yield has seen a rise of 68 basis points since early September, reaching a 16-year peak of 4.46%.

Variable home loans, which constituted about half of Canada’s outstanding mortgages between July 2021 and June 2022, have been on an upward trend.

The nation’s mortgage debt was C$2.1 trillion as of January this year.

Now, fixed-rate mortgages, influenced by bond yields, are also increasing.

This will further strain household finances and intensify the cost of living issues, impacting Prime Minister Justin Trudeau’s approval ratings.

Potential further interest rate hikes by the Bank of Canada could exacerbate this situation.

Regulatory bodies are preparing to announce new financial guidelines for banks.

In the UK, homeowners are also anticipating mortgage renewals with rising bond yields.

Many borrowers globally express concerns over the affordability of housing in major economies.

Hanif Bayat, CEO of Wowa Leads, suggests that the bond yields’ recent spike might add an average of C$600 to monthly payments.

To manage this, homeowners might consider re-amortization, extending their loan repayment period.