With a glut of mortgages coming up for renewal in Canada, scores of homeowners are assessing their options – but how many are turning to mortgage brokers for advice, instead of simply renewing immediately with their bank?

Recent Mortgage Professionals Canada (MPC) research showed that last year, the broker share of the overall mortgage market jumped by five points compared with 2022, increasing to 34%. That year-end survey of nearly 2,000 Canadians also indicated that the percentage of homeowners who were likely to use the same lender upon renewal was creeping upwards.

At the end of 2021, 22% of homeowners said they were “unlikely” to renew with their existing lender, compared with 31% in the “very likely” category. By 2022, those in the “unlikely” camp had ticked upwards to 23% – and a quarter of Canadians by the end of last year revealed they would probably seek a different lender for their renewal.

Why are borrowers more likely to shop around?

Andrew Thake (pictured top), an Ottawa-based broker with Smart Debt Mortgages, told Canadian Mortgage Professional plenty of clients who normally wouldn’t have considered shopping around were now doing so upon seeing the renewal rates being offered by their bank.

Reasons for that may vary, according to Thake, from dissatisfaction with the offered rate to hearing positive things from friends or family about their experience with a broker. “It’s just awesome to see more people just giving the broker channel a chance,” he said.

Among the most prominent dilemmas faced by borrowers upon renewal in the current market is whether to opt for a two- or three-year fixed term – which, at present, are more expensive than longer terms – or choose the more conventional five-year fixed option.

In most cases, the choice is a question of borrower appetite. “When people are learning and seeing that [shorter terms are more expensive], it’s driving some people back to the five-year,” Thake said. “Others are sort of biting the bullet and taking that higher rate on the three-year in hopes that they’ll save some bucks down the road.

“So [there are] a lot of clients, a lot of questions, a lot of information we’re having to share about where rates are going to go, about different options, about the market.”

How are mortgage borrowers coping with renewals at higher rates?

Canada’s banking regulator, OSFI (the Office of the Superintendent of Financial Institutions) and the Bank of Canada have both flagged the potential risk posed by mortgage borrowers renewing at significantly higher rates than they initially took out during the rock-bottom-rate environment of the COVID-19 pandemic.

In May, OSFI noted 76% of mortgages outstanding were set to face renewal by the end of 2026 – a fact that could heap further woes on already-strained borrowers faced with the prospect of much steeper payments than their current arrangement.

Still, the mortgage industry has remained relatively sanguine about the coming renewal wave, with little indication to date of a spike in distress among current homeowners and existing borrowers.

Thake said plenty of clients had already done their homework on the likely impact of higher payments. “I’m not seeing [distress] here,” he said. “I think a lot of people coming up for renewal [have] already heard that rates are higher. Some of them have already done some online calculations and stuff.

“By the time they’ve come to me they’re just sort of mentally prepared to take that hit when they hear what the payment is – so it hasn’t been a big shock to many people.”

Some borrowers are availing of extended amortizations to help navigate a higher-rate environment, while the mortgage stress test (which required borrowers to prove they could handle steeper payments, even when rates were at record lows) has also proven an effective means of helping homeowners absorb the shock.

The five-year fixed rate, for instance, remains lower than the rate most borrowers were stress-tested at, 5.25%. “There were a lot of safeguards in place, and the rates that [many borrowers] are actually getting are below those safeguards,” Thake said.

“Plus, a lot of people over the last half of decade, if they had that five-year fixed rate, their incomes have gone up. So that helps as well.”

This article was written for CMP: by Fergal McAlinden