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Top bank bosses expect many mortgage holders will be able to renew at lower interest rates over the next two years
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Published on January 7, 2025 • Last updated 1 day ago • 3 minutes reading time
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Bosses at Canada's biggest banks expect many mortgage holders will be able to renew at lower interest rates over the next two years as lenders compete for greater market share.
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Royal Bank of Canada CEO Dave McKay said 60 percent of the bank's customers will renew at lower interest rates in 2025. Of those that will renew at higher interest rates, he said 80 percent will meet the industry's mortgage payment stress test requirements. which essentially means they can make higher payments.
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These numbers don't mean Canadians aren't struggling with their payments now, he said, but the risk of not being able to absorb higher mortgage payments has decreased.
“When we look at the cohorts that have higher payments, we look at the overall payment shocks, it has eased significantly,” he said Tuesday at RBC Capital Markets' Canadian Bank CEO Conference.
Raymond Chun, chief operating officer of Toronto-Dominion Bank, said about a third of mortgages coming up for renewal in 2025 and 2026 were also renewed in recent years.
“People had short-term extensions – one year, two years – expecting interest rates to go down,” he said. “Not everyone actually renews at higher rates. A third of the renewals are probably actually renewals from higher rates… to lower rates.”
After keeping interest rates high for an extended period of time to combat high inflation, the Bank of Canada began cutting rates last year. Analysts say the cuts are gradually shifting the focus from “mortgage payment shocks” to increased competition for contract renewals.
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About 55 percent of all mortgages at Canadian banks are expected to be renewed in the next two fiscal years and 85 percent in the next three fiscal years.
Those factors could lead to a mortgage war, RBC analysts said in a November note, as Canadians seek lower interest rates and banks look to improve their existing market share.
“There's a big period of renewal coming up… we're going to fight hard for it,” McKay said. “We have been on the defensive for the last two years and have taken over HSBC… now we have taken over HSBC. We’re going on the offensive with a significantly expanded sales force that we haven’t had before, so we’re very excited about the opportunity.”
Chun said TD has made several investments to boost its mortgage business, including adding mortgage specialists to its branches across the country.
“I’m looking forward to an active season,” he said. “Our goal is to ensure that we grow profitably and continue to gain market share in the future.”
Some analysts believe the restrictions placed on TD in the U.S. could make the environment even more competitive because the bank could seek to compete aggressively domestically to meet its financing needs.
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In December, TD was fined about $3.1 billion by the U.S. Department of Justice and other regulators and limited the expansion of its retail banking business because it failed to monitor money laundering activities at its branches.
Victor Dodig, chief executive of the Canadian Imperial Bank of Commerce, said his bank expects to renew more than 200,000 mortgages each of the next three years and is confident the renewal rate will be high.
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He said CIBC has a process in place to contact its customers five months before renewal. The bank has also invested in digital processes such as mobile mortgage advisors.
“We live in a very competitive market, in my opinion the pinnacle of banking,” he said. “But we know we can hold our own. Our goal is to grow more or less with the market.”
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