Personal Finance

Survey: Over 50% of Canadian Homeowners Worried About Mortgage Renewal

Learn about the worries of Canadian homeowners regarding mortgage renewal through our comprehensive survey analysis.

In a landscape where mortgage rates have experienced unprecedented surges, Canadians seeking to renew their mortgages or purchase new homes harbor mounting concerns about their eligibility. The question of qualifying for the mortgage they need weighs heavily on their minds, prompting many to explore alternatives beyond traditional lenders.

A recent survey conducted by Leger in collaboration with BNN Bloomberg and RATESDOTCA revealed that nearly half (47%) of the respondents expressed concern over their ability to qualify, with a significant 16% stating that they are deeply apprehensive.

The study highlighted a particularly anxious segment among those planning to buy or renew their mortgages within the next 12 months, with a staggering 70% expressing worry about their eligibility. Furthermore, 60% of the age group between 18 and 34 showed genuine concern over their mortgage qualification prospects.

The inflationary pressure on mortgage rates during the past year has marked one of the most rapid rate increases witnessed in decades. This unprecedented surge has led to a wide array of mortgage rates being offered by lenders, ranging from 4.59% to 5.55%, depending on the type and term, according to the latest data from RATESDOTCA. A stark comparison can be drawn to the record-low rates observed in late 2020 and early 2021 when both variable and fixed-rate mortgages dipped below an astounding 2%.

However, the flip side to this surge in mortgage rates is the growing financial burden on homeowners. Affordability has been eroded significantly, even as home prices in various Canadian cities have experienced declines over the past year. Data from the Canadian Real Estate Association indicates that the national average home price in December 2022 stood at $626,318, reflecting a 12% decrease from the end of 2021.

The ramifications of higher interest rates have been starkly evident in RBC’s Housing Affordability Measure, which reveals that servicing the average mortgage now demands a more substantial portion of Canadians’ income compared to the previous year. On average, homeowners now find themselves allocating 62.7% of their income towards the costs of homeownership, setting a disheartening record of the worst level in history.

Consequently, many individuals are exploring alternatives to traditional lenders in their quest for mortgage affordability or to secure a renewal. The survey indicated that nearly one-third (29%) of respondents are considering such alternatives. These alternatives include seeking financial assistance from friends or family (12%) and contemplating the services of private lenders (11%), the latter often bearing significantly higher interest rates while lacking regulatory oversight, making them suitable only for short-term loans.

Related: 7 Reasons Why Housing Market is Reversing in 2023

Credit unions present a viable alternative for some homeowners as they often offer mortgage rates comparable to those of traditional lenders. Unlike their federal counterparts, credit unions operate under provincial regulations, which allow them more flexibility in disqualifying borrowers who fail the federal mortgage stress test. The stress test mandates borrowers to demonstrate their ability to afford either a mortgage rate of 5.25% or the negotiated interest rate, plus an additional two percent, whichever of the two is higher.

To ascertain these insights, Leger’s online panel facilitated an online survey of 1,527 Canadian adults aged 18 and above between March 17th and 19th, 2023. Following a filtration process, the sample was narrowed down to 666 homeowners with mortgages or those planning to purchase a home within the next year. It is important to note that a nonprobability sample such as this web panel does not allow for a margin of error association. However, for comparative purposes, a probability sample of 1,527 respondents would entail a margin of error of ±2.5%, 19 times out of 20, while a probability sample of 666 respondents would have a margin of error of ±5%, 19 times out of 20.

As part of their ongoing efforts to better understand how households are navigating through the challenges posed by COVID-19, BNN Bloomberg collaborates with RATESDOTCA to conduct monthly special coverage, offering a glimpse into the financial concerns of Canadians.