Mortgage Wars Looming as Some Canadians Take Advantage of Lower Interest Rates
Top banking executives predict widespread ability for homeowners to refinance mortgages at reduced interest rates in the coming 24 months.
Mortgage Wars Looming as Some Canadians Take Advantage of Lower Rates
The heads of Canada’s top banks expect many mortgage holders to be able to renew at lower rates over the next two years as lenders compete for a larger share of the market.
A Shift in the Market
After keeping interest rates high for a prolonged period to tackle high inflation rates, the Bank of Canada started cutting rates last year. The cuts are gradually shifting the focus from ‘mortgage payment shocks’ to higher competition for renewals, analysts say.
Renewal Numbers
About 55 per cent of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85 per cent in the next three fiscal years. These factors could lead to a mortgage war, RBC analysts said in a note in November, as Canadians hunt for lower rates and banks look to improve their existing market share.
Competition Heats Up
Royal Bank of Canada chief executive Dave McKay said 60 per cent of the bank’s customers will renew at lower rates in 2025. Of those who will renew at higher rates, he said 80 per cent will meet the requirements of the industry’s mortgage payment stress test, which essentially means they can manage to make their payments.
Banks Prepare for Renewal Season
TD has made several investments to boost its mortgage operations, including bringing in mortgage specialists at its branches across the country. "I look forward to an active season," Chun said. "Our goal is to make sure that we are growing profitably and continue to take market share as we go forward."
Mortgage Wars: A Likely Outcome
TD in December was fined about US$3.1 billion and a cap was placed on the expansion of its retail banking business by the U.S. Department of Justice and other regulators for failing to monitor money laundering activities at its branches. This could make the landscape even more competitive because the bank may look to aggressively compete at home to meet its financial needs.
CIBC’s Approach
Canadian Imperial Bank of Commerce chief executive Victor Dodis said his bank expects to renew about 200,000-plus mortgages in each of the next three years and is confident of a high renewal rate. "We live in a very competitive market, the premier league of banking, as I see it," he said. "But we know that we can hold our own. Our goal is to grow more or less with the market."
Conclusion
The mortgage renewal season is expected to be highly competitive, with many Canadians seeking lower rates and banks looking to improve their existing market share. The outcome of this competition will likely determine which bank comes out on top.
Key Statistics:
- 55% of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years
- 85% of all mortgages with Canadian banks are expected to be renewed in the next three fiscal years
- RBC analysts expect a mortgage war due to high competition for renewals
Recommendations:
- Canadians should research and compare rates from different lenders before making a decision
- Banks should prepare for a highly competitive renewal season by investing in digital processes and expanding their sales forces
- The Bank of Canada’s interest rate cuts are expected to continue, leading to lower mortgage rates and increased competition among lenders.
