Analysis-Little relief for indebted Canadian homeowners as mortgage rates seen higher for longer

investing.com:

By Nivedita Balu and Fergal Smith

TORONTO (Reuters) — Highly indebted Canadians hoping for relief from a rapid rise in mortgage rates are in for some disappointment, as recent moves in the bond market point to interest rates staying at elevated levels for longer than previously expected due to stubborn inflation.

The yield on Canada's 5-year bond climbed on Tuesday to a 16-year high of 4.17%, up from 2.66% in March, as investors gave up on the notion that the Bank of Canada and other major central banks will pivot quickly to rate cuts.

Nearly all Canadian mortgages have a term of five years or less, compared with the 30-year term that is common in the United States. As of January 2023, residential mortgage debt stood at C$2.08 trillion ($1.53 trillion), according to the Canada Mortgage and Housing Corporation (CMHC).

It means that when roughly 20% of Canadian mortgages come up for renewal in the next year, it will likely put many borrowers in a tougher financial spot than they could have expected just a few months ago. Mortgage rates tend to track moves in the bond market with a lag.

«With each passing month with rates going up and up, we are discussing with consumers how much mortgage they can qualify for, and that's been diminishing as rates have gone up,» said James Laird, co-CEO of Ratehub.ca.

At 6.79%, the five-year mortgage rate posted by major Canadian banks has climbed to its highest since November 2008, data from the Bank of Canada shows.

When it is time for renewal, options for homeowners hoping to shop for better interest rates might be limited as they would have to re-qualify for the stress test at the latest interest rates with their new lender.

STRESS TEST FLAW

Canada amended its stress test rules in 2021