Is the so-called Mortgage Renewal Cliff making a comeback?

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeReal EstateMortgagesIs the so-called Mortgage Renewal Cliff making a comeback?Robert McLister: The bond market suggests it is. Here's how 2027 mortgage renewers should prepareFor some homeowners, a second rate run-up would be more painful than the 2022-’23 cycle, writes Robert McLister. Photo by Getty Images/iStockphotoBack in 2023, someone coined the term “mortgage renewal cliff,” narrowly beating out their first idea, “surging wave of payment doom.”THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe idea was that if COVID-era borrowers renewed at much higher mortgage rates, their disposable income would fall off a cliff.Or was it that they’d run into the base of the cliff and stare up at their towering new payments?I was never clear on the precise analogy, but I’m fairly sure it was drafted by someone who has never seen a cliff.This advertisement has not loaded yet, but your article continues below.What was clear were the warnings coming from policymakers, economists and the media at the time.SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of FP West: Energy Insider will soon be in your inbox.We encountered an issue signing you up. Please try againRenewal shock was supposed to drag down the economy, drive up mortgage arrears and generally ruin everyone’s year.Then it all just fizzled.Borrowers absorbed the shock using accumulated pandemic savings, voluntary prepayments and extended amortizations. And then rate cuts and wage growth came to the rescue, sending the crisis from front-page news to the footnotes.Well, enter 2026. If you check a chart of Canada’s mortgage-rate-leading five-year government yield, it has rebounded considerably — recovering 63 per cent of its decline from October 2023 to April 2025.The five-year yield is now pointing toward four per cent. If it breaks above that, it could test its post-2008 financial crisis high of 4.42 per cent, a level set back when Bob Barker still hosted The Price Is Right.That’s when we’d start seeing “rate shock” make headlines again.What it would meanIf our five-year yield shot up 75 basis points, eclipsing its 2023 high, it would likely coincide with multiple Bank of Canada rate hikes — assuming forward markets are any indication.This advertisement has not loaded yet, but your article continues below.The consequences wouldn’t be subtle:Mortgage payments on a $668,351 home (today’s average) would jump about $232 a month — assuming leading rates, a 30-year amortization and a 20 per cent down payment.Our bank regulator’s mortgage “stress test” rate could climb from as low as 5.6 per cent today to 6.35 per cent or more. Qualifying for that average home would require at least another $8,000 to $9,000 in income.Buyer confidence would take a beating, listings would build, sales would weaken further and home prices could tumble.Canada’s economy, 20 per cent of which depends on real estate, would probably fizzle.Borrowers renewing 2022 mortgages that averaged in the high threes would face rates in the fives in 2027, leading to double-digit percentage increases in payments.Many would be unable to refinance due to falling home values or an inability to qualify at higher rates.In short, anyone counting on rate relief might be counting for a while.The good news is that if we do get a rate spike in 2027, fewer mortgagors would be exposed to it. That’s because renewals thin out sharply from the latter half of 2027 onward, compared with the past few years.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Moreover, our economy would probably tap out quickly at rates that elevated.After a possible bout of stagflation, inflation would likely drift back to its 30-year average of 2.15 per cent, possibly justifying Bank of Canada cuts in as soon as 18 to 24 months.As noted last week, hiking cycles have lasted just over 2.5 years on average, with the central bank raising rates by roughly 2.75 percentage points.All this assumes that no additional global crises arise in the meantime and require central bank liquidity. And that is no small assumption.The takeaways are twofoldFirst: there’s no rush to beat anyone to the housing market. This is not Black Friday and houses aren’t TVs.If rates don’t relent, home value softness should continue.Second: for some homeowners, a second rate run-up would be more painful than the 2022-’23 cycle.Statistics Canada data show real disposable incomes fell from their pandemic peak, so another spike in rates would create budgetary stress for many facing renewals or those on adjustable rates.If you’re one of these homeowners, risk management is essential. Early renewing or re-amortizing — while you can still qualify — can sometimes help.This advertisement has not loaded yet, but your article continues below.If you can’t do that, estimate your payment with rates at least 150 basis points higher. Then start living on that higher payment now, socking away the difference so you can build a liquid reserve for 2027. And yes, I realize that “save more money” is often the financial advice equivalent of “try to be taller.”Last but not least, none of this is a guarantee that we’ll see much higher rates. But if you’re in a variable rate mortgage with a set payment (as opposed to an adjustable-rate mortgage where payments move with the prime rate), contact your lender or mortgage broker anyway.Ask the lender to estimate how high its prime rate would need to rise before your payments went up. Most of them have a trigger rate at which they start hiking payments, even on “fixed payment” variables.Knowing how much cushion you have tells you how much urgency you should feel.Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.For the best national insured and uninsured mortgage rates, updated daily, please visit our mortgage rate page here.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.