As interest rates continue to trend downward, Canadian banks are bracing themselves for a potential mortgage war. The heads of the country’s top lenders expect many homeowners to be able to renew their mortgages at lower rates over the next two years as they compete for a larger share of the market.
Renewal Rates on the Rise
Royal Bank of Canada (RBC) CEO Dave McKay revealed that 60% of RBC customers are expected to renew their mortgages at lower rates in 2025. Of those who will renew at higher rates, McKay stated that 80% will meet the requirements of the mortgage payment stress test, which means they can manage to make higher payments.
Toronto-Dominion Bank (TD) chief operating officer Raymond Chun echoed similar sentiments, noting that about a third of mortgages coming up for renewal in 2025 and 2026 were also renewed in the past few years. "People had renewed into short term — one year, two years — anticipating interest rates coming down," he said.
The Shift to Lower Rates
After keeping interest rates high for an extended period to tackle inflation, the Bank of Canada began cutting rates in 2022. This has led to a surge in demand for lower mortgage rates, with Canadians hunting for better deals. As a result, banks are expected to compete fiercely for market share.
Mortgage Renewals on the Horizon
According to RBC analysts, about 55% of all mortgages with Canadian banks are expected to be renewed in the next two fiscal years and 85% in the next three fiscal years. This significant renewal period could lead to a mortgage war as banks vie for customers and market share.
Banks Prepare for the Fight
RBC has made several investments to boost its mortgage operations, including hiring more mortgage specialists at branches across the country. TD has also invested in digital processes such as mobile mortgage advisers.
CIBC CEO Victor Dodis stated that his bank expects to renew over 200,000 mortgages each year and is confident of a high renewal rate. CIBC has implemented a process to reach out to clients five months before renewal, ensuring they are prepared for the competition.
The Competitive Landscape
Some analysts believe that TD’s restrictions in the US market could make the Canadian landscape even more competitive. With limited growth opportunities abroad, TD may focus on aggressively competing at home to meet its financial needs.
As interest rates continue to trend downward, Canadians can expect a heated battle for mortgage customers. Will banks be able to maintain their market share or will new entrants disrupt the industry?
What’s Next?
Stay tuned for updates on the Canadian mortgage market and the ongoing competition among lenders. As interest rates continue to fluctuate, it’s essential to monitor the situation closely.
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