According to a recent report by RBC analyst Darko Mihelic, about 60% of outstanding mortgages at Canadian chartered banks are facing a payment shock in the next 3 years. Mihelic has sited that this “payment shock” could be significant and a tail risk for Canadian banks.
“Unless there are significant declines in interest rates, we believe that credit losses will inevitably rise, perhaps significantly in 2025 and beyond,” Mihelic wrote.
So how can you protect yourself against rising rates?
One way to ensure that you’re keeping your lower interest rate is to blend new money into your mortgage in the MIDDLE of your term. Blending in new funds allows you to essentially extend your existing interest rate beyond the existing maturity date. Here’s how it typically works:
- most lenders require you to blend in at least $20,000
- your existing mortgage balance and interest rate remain the same
- the new funds are blended into your existing mortgage at current market rates
- you can extend your term (which will give you a new renewal date on the existing mortgage) (a few lenders will not extend the term so please check with your mortgage broker).
- you can extend your amortization to a maximum of 30 years.
The Bank of Canada has aggressive raised interest rates since March of 2022. In total there have been 10 increases to the benchmark rate. Forward thinking is key for homeowners!