As the ongoing conflict in Iran continues to drive up oil and energy prices globally, Canadian homeowners are facing significant uncertainties regarding mortgage renewals. The Canada Mortgage and Housing Corporation has projected that over 1.5 million households had already renewed their mortgages by the end of 2025, with an additional million expected to do so in 2026. This wave of renewals coincides with rising mortgage rates in neighbouring America, where the 30-year fixed mortgage rate recently surged past six per cent.
Economic Ripple Effects from the Iran Conflict
The escalating tensions in and around Iran have had immediate repercussions on the financial landscape. The surge in oil prices has led to a corresponding increase in bond yields, a critical factor influencing mortgage rates. Clay Jarvis, a mortgage expert at NerdWallet Canada, explained that lenders often rely on bond yields to determine fixed mortgage rates. “Once oil prices skyrocketed in reaction to hostilities in and around Iran, yields followed suit,” he noted. This relationship underscores the potential for increased borrowing costs for Canadians amid rising global tensions.
In Canada, the impact has been tangible, with fixed-rate mortgages rising slightly since hostilities began. Dan Eisner, CEO of True North Mortgage, remarked, “We’ve probably seen fixed rates go up by at least a quarter per cent right across the board from all the lenders.” While some homeowners may still secure mortgage rates below four per cent, the looming uncertainty complicates planning for renewals.
Navigating Uncertainty in Mortgage Renewals
Homeowners renewing their mortgages this year are advised to pay close attention to three and five-year government bond yields. Jarvis indicated that while there has been a modest increase in fixed rates among certain lenders, the changes have not been drastic. However, the unpredictable nature of the current geopolitical crisis adds a layer of complexity to the renewal process. “It’s like a roller-coaster. Every tweet from politicians, including U.S. President Donald Trump, seems to move things,” he commented, highlighting the volatility affecting financial markets.
As of this past Tuesday, the lowest five-year fixed mortgage rate in Canada stood at 3.69 per cent, with the lowest five-year variable rate at 3.35 per cent, according to Ratehub, a Canadian rate comparison platform. Yet, the ongoing volatility suggests that mortgage affordability could remain under pressure, especially if the Bank of Canada decides to raise interest rates in response to inflationary pressures.
Strategies for Homeowners
Given the current landscape, homeowners may wish to consider flexible options when renewing their mortgages. Eisner suggested that opting for a variable rate now could be a strategic move, allowing homeowners to lock in a fixed rate at a later date without incurring additional costs. This approach could provide a buffer against the unpredictable fluctuations tied to oil prices and broader economic conditions.
The burden of mortgage debt is already weighing heavily on many Canadian families. A recent Equifax Canada report revealed that Canadians added substantial mortgage debt last year, with total mortgage liabilities nearing $2 trillion by 2025. The same report indicated that many households face “payment shock,” a term used to describe the sudden increase in monthly payments upon renewal, prompting some to switch lenders.
Why it Matters
The intertwining of international conflict and domestic economic policy has profound implications for Canadian homeowners. As oil prices continue to fluctuate due to geopolitical tensions, the potential for rising mortgage rates could exacerbate financial strain for households already grappling with significant debt. With the mortgage renewal wave set to peak in the coming years, the importance of strategic financial planning has never been more critical. Homeowners must remain vigilant and adaptable in navigating this uncertain landscape, ensuring they make informed decisions that safeguard their financial futures amidst a backdrop of global volatility.
