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While the pain of elevated interest rates is already hitting those with variable-rate mortgages, the sticker shock of higher payments might not be felt for a couple years among those with fixed-rate plans.

Chris Wolfe, managing director and head of North American banks at Fitch Ratings, believes the true scale of mortgage stress might not hit some borrowers until it comes time to refinance. 

“The real issues, especially for the fixed-rate borrowers, (are) going to come in 2025 (or) 2026, when their mortgages have to be refinanced, so there’s still a little bit of runway before we see a lot of the issues begin to emerge,” he told BNN Bloomberg on Wednesday.

Earlier this month, the Bank of Canada resumed raising interest rates after a brief pause as it looks to tame inflation. The next rate announcement is scheduled for July 12, with many experts tentatively predicting another hike.

Those with variable-rate mortgages have really felt the pressure of the past year’s rate hikes. The Bank of Canada reported back in November that roughly 50 per cent of variable-rate borrowers had reached the trigger rate, meaning the mortgage payments are only covering the interest.

To help deal ease the pain of payments, some banks have begun making adjustments to help borrowers.

“The other thing you’re seeing is a lengthening of amortization schedules,” Wolfe said. “So last year or prior, maybe one per cent of mortgages had a 30-year term and now that’s up to 20 per cent, so what you’re seeing is banks extending term to help borrowers with payment.”

Source: BNN Bloomberg