One economist says that upcoming mortgage renewals are likely to put less of a strain on households than previously feared, potentially acting as a tailwind for consumer spending.
Maria Solovieva, an economist at TD Economics, released a report Wednesday on upcoming mortgage renewals which found that aggregate payments on mortgages are “poised to decline for balances outstanding as of mid-2024.” The report found that as mortgage owners were facing renewals at higher rates, many elected to take steps ahead of time to limit the impact on their household budget.
“The key factors behind this expected easing are lower interest rates and increased payments, which have helped to front-load the payment shock,” the report said.
“In turn, reduced debt payments could stimulate consumer spending more than expected, shifting the balance of risks toward higher inflation. This could challenge the Bank of Canada’s goal of ‘sticking the landing’ and argues for a more measured and gradual approach to rate cuts.”
According to data from the Canada Mortgage and Housing Corp. (CMHC), there are around 1.2 million mortgages up for renewal in 2025, around 85 per cent of which were signed when the Bank of Canada’s policy rate was at or below one per cent.
Ahead of the looming wave of renewals at higher rates, Solovieva said in the report that TD Economics argued last year that Canadian households “could weather the renewal shock.”
“And indeed, they did – by refinancing into fixed-rate mortgages, increasing regular payments, and reducing spending to support debt servicing,” the report said.
“In fact, many Canadians who renewed or initiated their mortgages at the interest-rate peak opted for shorter terms, positioning themselves to reset their mortgages at a lower interest rate in the coming year thanks to a significant reduction in interest rates.”
The actions taken by mortgage owners, according to the report, broadly lowered financial stability risks from mortgage renewals, creating more room in consumers’ budgets.
“While we still expect consumers to remain cautious overall, this positive trend could offer a boost to consumer spending in 2025,” Solovieva said in the report.