Save today for security tomorrow

Roughly half of mortgage holders have yet to face higher rates, but it’s never too early to start preparing

- LEAH GOLOB

Allison Joseph, a supply teacher who renewed her mortgage at a variable rate of 1.72 per cent during the pandemic, is not looking forward to her next renewal in December 2025.

It’s going to be a “huge increase” says the Sparta, Ont., resident, who is also a former mortgage broker. It’s “very intimidating.”

Because her interest rate is so low, Joseph’s strategy is to park any extra money into two short-term GICs with five per cent interest rates, within her Tax-Free Savings Account, then use those investments to make a prepayment on her mortgage at the end of its current term.

According to the Bank of Canada’s latest financial stability report, approximately half of all outstanding mortgages are held by borrowers who have yet to face higher rates because their payments were fixed for five years, either with fixed or variable rates. “Households that hold these mortgages will generally see a larger payment increase than those that have already renewed,” the report says.

That’s because homeowners set to renew their mortgages in 2025-26 got fixed rates as low as 1.49 per cent and variable rates starting at 0.95 cent, says Ron Butler, mortgage broker at Toronto-based Butler Mortgage.

While rates are beginning to drop after spiking between March 2022 and July 2023, the pace of future rate cuts is projected to be more gradual, according to Deloitte Canada’s economic outlook report for summer 2024.

For homeowners expecting a mortgage renewal in late 2025 and 2026, it’s not too early to start preparing.

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