A “mortgage war” could be on the horizon as interest rates decline since more than half of all mortgages with Canadian banks are set to be renewed in the next two fiscal years, Royal Bank of Canada analysts say.
After a period of “significant inflation,” consumers will have a “strong incentive” to shop around for the lowest available mortgage in the coming years, Darko Mihelic said in a note on Monday.
“In today’s market, lower mortgage rates will make a significant difference for Canadians whose mortgages were originated at all-time low interest rates,” he said. “For a mortgage that was taken out in June 2020, a 50-basis-point impact in the renewal rate would result in annual savings of about $1,000.”
Mihelic expects mortgage brokers to “actively mine” their databases and “proactively” reach out to borrowers.
The Bank of Canada has announced four cuts in interest rates this year — with more expected — after keeping them high for a prolonged period to tackle high inflation rates. The cuts are gradually shifting the focus from “mortgage payment shocks” to a high competition for renewals, analysts say.
About 55 per cent of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85 per cent in the next three years, Mihelic said.
Restrictions imposed on Toronto-Dominion Bank’s growth in the United States could make the landscape even more competitive, he said, since it may look to “compete aggressively” to meet its financial needs.
“All Canadian banks view mortgages as a significant anchor product and, currently, loan growth across multiple loan categories is very low,” Mihelic said. “The chance to grab market share from a competitor is significant.”
TD was fined about US$3.1 billion and
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