Surging bond yields add to Canadian homeowners' mortgage pain as renewals loom By Reuters

By Nivedita Balu

TORONTO (Reuters) - The How much is the recycling price of second-hand gold per gram todayroughly 75,000 Canadian homeowners awaiting mortgage renewal notices next month are bracing for a shock interest rate jump due to a surprise global bond rally, which will further squeeze already tight household budgets.

In Canada, homeowners can take out five-year mortgages, unlike in the U.S. where customers can snag a 30-year mortgage. This means many Canadians who locked into sub 2% fixed-rate mortgages five years back are preparing for renewal letters with a steep rise in interest rates, made worse by the bonds rally.

In some cases, renewed home loan rates could reach 7%, which would push up the average Canadian mortgage by at least a few hundred dollars per month, mortgage brokers estimate.

Canadians are already struggling to repay their debts amid high costs of living and rising interest rates. That has forced banks to put aside money in case of defaults, weighing on their overall profits.

With roughly about C$200 billion ($146.36 billion) in home loans coming up for renewal next year, mortgage brokers and lawyers are preparing for more distress sales in the property market.

"We're having a lot of phone calls about people with concern... (about) what they should be doing to brace themselves for the maturity date, or the renewal of their mortgage," said Daniel Vyner, a broker at Toronto-based boutique mortgage firm DV Capital.

The rate for a five-year mortgage was about 5.34% in November 2018 and the three-year was priced at 3.59% in November 2020, according to data compiled by financial data firm Wowa Leads.

Homeowners receive a notice four to six weeks before their renewal date as lenders hatch out various options with fresh interest rates based on market trends at the time of renewal. A global move in bonds yields that has pushed the Canadian 5-year yield up by as much as 68 basis points since early September, to touch a 16-year high on Tuesday at 4.46%, will likely be reflected in the November renewals.

"This dramatic rise in bond yields means that when the computer chugs along and sets up the rates for next week, they will be using higher rates based on these high bond yields," Toronto-based mortgage broker Ron Butler said.

The big banks generally contact clients four to six months in advance outlining renewal options.

Variable home loans, which accounted for roughly half of Canada's outstanding mortgages from July 2021 to June 2022, were already rising in tandem with the Bank of Canada's record pace of interest rate hikes. The country's mortgage debt stands at C$2.1 trillion, as of January of this year, according to Canada Mortgage and Housing Corp.

Now the fixed-rate mortgages, driven by bond yields, are rising as well leaving homeowners nowhere to hide.

A sharp jump in mortgages would further tighten household budgets and aggravate the cost of living crisis which has become rallying point for many Canadians. Prime Minister Justin Trudeau's popularity has plunged in opinion polls in response.

And the mortgage pain could grow if the Bank of Canada raises its benchmark interest rate one more time over the coming months as money markets expect, from the current 5%, and likely to stay higher for longer, analysts say.

One homeowner said on X social media platform that his previous rate of 2.6% is now jumping to 6%. "I don't know how people can afford to live in these G7 countries."

One in five borrowers expect to renew their mortgage in the next year, jumping to more than two-thirds over the next three years, according to Mortgage Professionals Canada.

Hanif Bayat, CEO of Wowa Leads, estimates that at least 75,000 consumers receive these letters every month with revised higher interest rates as their renewal approaches. He suggests that the spike in bond yields over the past month could on average add C$600 in monthly payments.

One step homeowners could take is re-amortization, brokers said, which means increasing the number of years they would take to repay their loan.

"I hear worry, consistent, definitive worry," Butler said.

($1 = 1.3665 Canadian dollars)

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