According to a recent report from RBC Capital Markets, a significant number of mortgages are coming due in the next three years - around 60% of all outstanding mortgages at the Canadian chartered banks - and that payment shock (the increase in payment at renewal) represents a tail risk to Canadian banks. At the same time, it's important to remember that Canadian banks have multiple sources of revenue outside residential mortgage lending.

 

While this report focuses on the impact mortgage renewals will have to Canadian banks, we feel the content is likely of interest to most Canadians - whether they are investors, mortgagors, mortgagees, or have a general interest in the real estate market and economy. 

 

Below are a few points of interest pulled from the full report, which can be read here.

 

• RBC Capital Markets believes there will be more than $186 billion of mortgages renewing in 2024 at the chartered banks in Canada and at current interest rates (for example, the 5-year fixed mortgage rate of 5.54% is over 180 bps higher than five years ago), a weighted average payment shock of 32% could be expected.

• Interest rate assumptions at renewal are critical. For example, a -100 bps decline in mortgage rates from current levels would reduce the payment shock from 30%+ to 20%+ for the 2025 renewal year.

• Mortgage payment shock will likely impact loan/revenue growth, mortgage delinquency (though modestly), and losses on other forms of credit (spillover effect).

• The Canadian banks are not sitting still and being rather proactive to reduce payment shock for their customers, which could have a significant impact. Customers are given a range of options including increasing monthly payments, switching to a fixed rate, making a lump sum payment, or extending the amortization period.

 

 

 

Click here to read the full report.