Mortgage lenders brace for 'challenge' when borrowers face renewal crunch

financialpost.com:

Banks aren’t the only lenders facing clients under pressure as rising interest rates ramp up monthly payments for borrowers who piled into the real estate market during a period of historically low rates, including at the peak of the COVID-19 pandemic in 2021, before the Bank of Canada rolled out a steady stream of rate hikes.

Credit unions and cooperatives, too, are dealing with a swathe of customers facing monthly increases in financing costs to the tune of hundreds of dollars. Like the banks, these financial institutions have raised their provisions for credit losses and are negotiating with customers to lengthen mortgage amortization periods to give them breathing room or working out a schedule for increased payments to avoid accumulating more debt that will have to be paid down the road.

“Sometimes, it’s just to increase payments. Sometimes, we help them to maybe just reshuffle their budget a bit,” said Guy Cormier, chief executive of Desjardins Group, Canada’s seventh-largest financial institution by assets, trailing only the country’s largest banks.

While significant losses haven’t materialized, Cormier said he is concerned about mortgage renewals beginning in a couple of years when a raft of fixed-rate mortgages with five-year terms end. He estimated that around 10 to 15 per cent of Desjardins members could be under stress.

“The challenge is probably 2025-26 when we will see on the fixed-mortgage rates increase, it could be maybe $500, $1,000, $1,500 in increased monthly payments,” he said. “That will probably be a challenge. That’s why we are provisioning (for) some losses eventually.”

Two-thirds of mortgage borrowers in Canada said they are “having trouble meeting their financial commitments,” according to a